(Bloomberg) -- Turkey said all the right things yet offered scant evidence for how the Middle East’s largest economy will dig out of its worst currency crisis in decades.
In a roughly half-hour long conference call, Treasury and Finance Minister Berat Albayrak told about 6,000 global investors that he had ruled out capital controls. The economy czar also underscored the need to rein in inflation and narrow the nation’s worst current-account deficit in years. Turkey’s lira jumped to a one-week high against the dollar, yet Albayrak’s words failed to soothe some of the world’s largest money managers.
"Turkey is trying to rewrite the crisis management chapter in the playbook for emerging markets," Mohamed El-Erian, chief economic adviser to Allianz SE and a Bloomberg Opinion contributor, said on Bloomberg TV. "It’s trying to go without interest rate hikes. It’s trying to do it without the IMF. That’s hard. It’s not impossible, but it’s hard."
Albayrak’s comments provided a glimpse into the new economy chief’s thinking as a spat with Washington over a detained U.S. pastor roils Turkish markets. The lira lost as much as a quarter of its value within two weeks of U.S. sanctions against members of President Recep Tayyip Erdogan’s government, while the nation’s stock gauge tumbled to an 18-month low. The currency has pared losses after banking regulators and the central bank made it costlier to bet against the currency.
Here’s what else investors and analysts had to say:
El-Erian
- It’s time to reduce Turkish exposure as restrictions on shorting the lira only offer short-term relief, he said.
- El-Erian said he’s concerned by potential corporate bankruptcies, pressure on banking system, higher inflation and the likelihood of a recession.
Wei Li, BlackRock Inc.’s head of iShares EMEA strategy in London:
- "There is still skepticism that the authorities take the necessary steps to address the country’s issues."
- "The market turmoil in Turkey is the latest in a series of fragilities amplified by gradually tightening financial conditions this year. Investors should prepare for further bouts of volatility ahead."
- "We see several of Turkey’s challenges being idiosyncratic in nature, however, having said that, the dent to broad EM sentiment is undeniable, and we see a bumpy ride ahead."
Shamaila Khan, director of EM debt at AllianceBernstein in New York:
- "It’s hard to have confidence considering their recent track record, but after recent volatility the government has to realize the importance of these measures to stabilize the economic situation."
- "The message was orthodox which was a positive but lacking in details. It will be important to watch future actions which need to back up these statements."
Julian Rimmer, a London-based trader at Investec Bank Plc:
- "There’s denial and a refusal to accept market realities and the fact they will have to hike rates and/or cut spending very sharply. There’s no way of getting round it. It seems like they think they can."
- "The only modicum of encouragement was that he expressed commitment to cutting spending and said they’d already started that."
Richard Segal, senior analyst at Manulife Asset Management Ltd. in London:
- "He’ll get the benefit of the doubt for now, meaning this week’s gains should be sustained."
- Albayrak’s measures underscore the commitment to re-balance and cut inflation may put him in conflict with Erdogan, his father-in-law, Segal said.
--With assistance from Jonathan Ferro, Paul Wallace, Lyubov Pronina and Onur Ant.
To contact the reporter on this story: Ben Bartenstein in New York at bbartenstei3@bloomberg.net
To contact the editor responsible for this story: Rita Nazareth at rnazareth@bloomberg.net
©2018 Bloomberg L.P.
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