We live in such strange times that most people don’t even notice how quickly certain principles that until not long ago appeared fundamental for Western societies are being eroded.
The headline may be a bad pun, but the warning is serious. Many people believe that the trouble with Turkey’s currency is confined to that country, but that is far from the case. Turkey is just the first country that implemented populist policies when the going was good to now pay for these policies. The markets are about to teach populists a lesson, and Turkey is the first instalment.
This past week, there has been a frenzy of selling of emerging markets assets. The outflows from both stocks and debt in emerging markets reached their highest level since December 2016.
This amounted to $3.7 billion withdrawn from emerging market equities and bonds, according to data analysed by Bank of America Merrill Lynch. These outflows have helped push our old friend, the Bull/Bear indicator developed by BofA Merrill Lynch, to 4.8 — its lowest level since January 2017.
Emerging markets have been in the doldrums recently but one region, which had been hard hit by the eurozone crisis, seems to be getting ready for a brisk upturn now.
The residential property bubble continues in countries like the UK and Sweden, but it seems to have spread to some other countries as well, according to data from the Bank for International Settlements.
Emerging markets currencies will be one of the most affected asset classes when the Federal Reserve starts to hike interest rates, but actually some of them stand to benefit.
Emerging market assets, particularly bonds but also equities, are staging a comeback as investors gradually return to risky assets.
A survey of investor sentiment carried out by Societe Generale in February among 41 hedge funds and 41 real money investors such as pension funds, showed the bullish bias towards emerging markets strengthening for the near term.
The favourite asset class for investors in emerging markets is debt in local currency, and investor sentiment is off to a strong start for the year, a survey by Societe Generale shows.
Turkey is the big winner and Russia the big loser when it comes to investment by the European Bank for Reconstruction and Development (EBRD).
Investors who like to follow the flow of institutional capital would do well to take a look at the development bank’s latest statement regarding its investments in the region.