Mark Mobius on weaker Turkish lira, investing in rising markets

Turkey will not be the one nation dealing with a forex disaster given the prospects of upper rates of interest within the U.S., distinguished rising markets investor Mark Mobius mentioned Tuesday.

“Yeah, course it could,” Mobius advised CNBC’s “Closing Bell” in response to a query on whether or not the sharp depreciation seen within the Turkish forex — the lira — may unfold to different international locations.

“With increased rates of interest within the U.S., all these different international locations which have debt in {dollars} will likely be hit,” mentioned the investor, who’s the founding accomplice of funding agency Mobius Capital Companions.

The Turkish lira crashed to a document low Tuesday because the nation’s President Recep Tayyip Erdogan defended his central financial institution’s continued contentious rate of interest cuts amid rising double-digit inflation.

Mobius didn’t specify which different international locations are susceptible to a forex disaster. However he mentioned the excellent news is that for the reason that 1997 Asian monetary disaster, many rising markets have borrowed extra of their native currencies.

An evaluation launched final week by funding financial institution Nomura discovered that the 4 rising markets most vulnerable to an change price disaster are Egypt, Romania, Turkey and Sri Lanka.

The evaluation thought of indicators akin to exterior debt as a proportion of gross home product, the ratio of international change reserves to imports, and inventory market index.

“Trying forward, the prospect of the Fed normalizing financial coverage amid China’s deepening financial downturn just isn’t a very good mixture for [emerging markets],” Nomura mentioned in its report final week.

The U.S. Federal Reserve is about to begin tapering the tempo of its asset purchases this month. Most Fed officers have mentioned they will not think about elevating charges no less than till the taper winds down, however markets have been in search of a sooner timeline for charges, with the preliminary hike now priced in for June 2022.

That has come at a time when rising markets are confronted with different challenges akin to rising fiscal and present account deficits, in addition to rising meals costs, mentioned Nomura.

Increased rates of interest do not essentially imply “an enormous downturn” in markets, mentioned Mobius.

Firms with sturdy earnings and good margins would nonetheless do effectively in an setting with rising rates of interest, the investor mentioned, including that India and Taiwan are his two most well-liked markets.   

As for Turkey, Mobius mentioned a weaker forex may result in higher exports overseas.

“The businesses that we personal in Turkey are having earnings in {dollars}, in euro. And with a decrease and weaker Turkish lira, they’re doing higher as a result of their prices are a lot decrease,” he mentioned.

— CNBC’s Natasha Turak, Jeff Cox and Thomas Franck contributed to this report.