Turkish markets are plunging deeper into the wild. Unprecedented sanctions imposed by the U.S., its NATO ally, have added to the cross-currents buffeting investors. They’ve already been despairing at policy makers’ failure to contain inflation and stem the slide in the lira under pressure from President Recep Tayyip Erdogan to bolster growth.
The U.S. “move will likely only incense Erdogan and a commensurate response is already promised,” Timothy Ash, a strategist at BlueBay Asset Management in London, said in emailed comments.
Turkey remains particularly exposed to shifts in investor sentiment, given its large external financing needs. The lira has shed more than a fifth of its value this year against the dollar as capital inflows slowed to a trickle, hampering the ability of companies to repay foreign-currency loans and fueling inflation.
The lira, bonds and stocks extended their slide after the U.S. imposed sanctions on two government ministers over the detention of an evangelical pastor. The currency fell as much as 2 percent to an all-time low of 5.0924 against the dollar, extending a slide of more than 25 percent this year.
The yield on 10-year debt bonds jumped 89 basis points to a record 19.48 percent. The benchmark share index dropped as much as 2.8 percent, bringing its loss this year to 18 percent, the worst performance in the world in local-currency terms.
“The market lurches from one negative event to another,” said Nigel Rendell, a senior analyst at Medley Global Advisors in London. “The net result being the erosion of foreign appetite for Turkish assets and an ever weaker lira.”