Some common threads exist in the richly-diverse emerging market tapestry. And these can provide valuable, if rather unexpected, insights for investors.
Take Turkey – a country hitting the headlines for all the wrong reasons. Recent discussions among our regional experts have uncovered interesting parallels between it and three countries in Latin America: Brazil, Argentina and Venezuela. The journeys of these range from an impressive turnaround story to a tragic demise. Which, if any, Turkey ends up emulating is of crucial importance to emerging market debt investors given Turkey’s significant index weight.
Turkey could follow a similar path to Argentina - a journey that’s far from over and has been anything but smooth.
Our analysis leads us to believe that Turkey could follow a similar path to Argentina, where the Kirchner leadership was hailed as the harbinger of stability before shifting to populist policy and economic mismanagement, resulting in an IMF-bail-out and much needed regime change. A journey that’s far from over and has been anything but smooth. This helps to explain our cautious-positioning in Turkey’s sovereign bonds and the lira – a stance that has helped to cushion our investors’ assets from recent Turkish market weakness.
Here’s a summary of our Turkish analysis through a Latin American lens.
Emerging market: These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems.