EM Currencies: Turkey as the One Bad Apple?

Written by: Global Thought Leadership | August 10, 2018

Source: Bloomberg, August 10, 2018. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.


  • The Turkish lira is plummeting again on Friday. Over the past month, the currency has fallen over 20%; since the beginning of the year,  in the range of 35% - 40%.
  • So far, neither the Turkish central bank nor the government have taken any of the traditional, well-understood measures to stem the tide. The government has not appealed to the International Monetary Fund, established capital controls on people or banks, and not raised interest rates to compensate prospective bondholders enough to take the plunge and bet on an eventual recovery.
  • Instead, in a rally mid-day Friday, President Erdogan exhorted citizens to bring their “mattress money” euros, dollars and gold[1] to local banks to exchange them for Turkish lira as an act of patriotism.
  • It’s perhaps understandable that some investors might see the current situation as the embodiment of their worst EM nightmare, and choose to move away from the entire asset category.
  • But active investors with experience in EM currencies might be seeing something else; namely, a very country-specific mix of political tensions; regional instability; and economic decisions that drain foreign currency reserves at the same time as increasing the country’s hard-currency indebtedness.
  • Contrast that situation with Mexico, for example, whose currency has appreciated nearly 4% year to date, as a gradual change of government after a landslide election has proceeded without visible trauma.
  • Granted, not all EM economies resemble Mexico.  But it might be useful to note that the MSCI Emerging Market (EM) Currency Index has fallen a mere 3.66% year to date as of early Friday, August 10, vs. the 40% decline in the Turkish lira, part of the EM universe.
  • All of which suggests that there are other EM economies that don’t share Turkey’s troubles, and could be momentarily priced below their fair market value.
  • Bottom line: While Turkey’s situation is dismaying, astute investors are free to turn to opportunities in less troubled countries and proceed accordingly. For a long-term perspective on EM economies in general, explore Brandywine Global’s Emerging Markets: Dangerous? Or Just Like the Rest? and Martin Currie’s The EM Trends that Matter.


[1] “Mattress money” refers to money in the form of cash, foreign currencies and precious metals such as gold, that are held in physical form in households, intended as an informal safety mechanism for household wealth.


All data Source: Bloomberg, August 10, 2018, unless otherwise specified.


Emerging market (EM) countries are nations with social or business activity in the process of rapid growth and industrialization. These nations are sometimes also referred to as developing or less developed countries.

The MSCI EM (Emerging Markets) Index is a free-float weighted equity index that captures large and mid cap representation across Emerging Markets (EM) countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country.

The MSCI EM Currency Index sets the weights of each currency equal to the relevant country weight in the MSCI EM Index.



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