https://hotcopper.com.au/threads/its-over.4002109/page-125?post_id=33612841#.W3DEqk8UmAg
I posted the above in early June and also another post on a potential Turkey crisis in early part of the year (can no longer reproduce).
And now the Turkey currency crisis has come to roost. The reality is that the emerging market has been on the brink for some time, it just needs something to tilt it over, and that came courtesy of POTUS and his infamous tweets.
So what do I make of this Turkey crisis? Will it snowball into an emerging market crisis?
There are three possible contagions emanating from this, but I think all unlikely
at this stage of the economic cycle.
The emerging market currency contagion like the Asian financial crisis in 1987, and alluded to in the embedded article in the above link. But Turkey GDP is less than 1% of world GDP so impact is minimal. Secondly, banking contagion. Several European banks including BBVA and BNP Paribas have large exposures to Turkey debts, so they could come under scrutiny and European bank stocks were marked down last Friday. Finally, financial market contagion where portfolios impacted by Turkey begins to sell down equities and other assets across the board. I think the one to watch here is China which has already suffered from the trade dispute with POTUS.
So a crisis is in the making but it is still brewing, the signs are showing, but unlikely to become the Big Kahuna just yet. Its when interest rates scale higher and global trade slows markedly, then the vulnerabilities will turn into that big sinkhole (sinkholes don't just happen, its weakening each day below before a final cave in that takes everyone by surprise).
The Dow could actually move to put on in coming month although I would be wary by October/November and certainly in 2019.
It could be the final hurrah or close to it by then.
As always, prudent to practise good risk management - take profits/ don't put all eggs on one basket / know when to cut loss / don't buy falling yesteryear angels.
