“Emerging-market equities are the… darling of global markets,” Isik Okte of BNP Paribas told Bloomberg. And Turkish stocks have just reached a new record. So it’s no wonder local firms are lining up to float, with initial public offerings (IPOs) worth up to $4bn expected this year. That would eclipse 2007’s all-time high.
But there’s another incentive to tap global equity investors’ funds – and it highlights the economy’s vulnerability. Turkish companies have racked up a record $326bn of foreign-currency debt. Many have already restructured their loans, and have now opted to tap the equity markets instead. Their borrowings will become more expensive as the local currency, the lira, weakens.
Sadly, it is doing exactly that, as The Economist points out. It has slipped by 40% against the dollar in two years, a result of concern over the government’s authoritarianism and tendency to harangue the central bank when it tries to temper inflation with interest-rate hikes. Throw in a state spending spree and a credit bonanza over the past year, and Turkey’s boom could turn to bust quickly. Its current-account deficit of 4.7% of GDP means it is especially vulnerable to foreign capital turning tail if sentiment towards emerging markets shifts. Steer clear.