Turkey All Clucked Out

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What's going on?

The value of the Turkish lira hit record lows on Thursday, while data showed demand for gold in the country soaring – both are the result of rapid price rises (a.k.a. inflation) that have left international investors considering the prospect of going cold turkey on their emerging market investments.

What does this mean?

Turkish inflation registered a not-so-delightful 11% in April on the back of currency declines, in part driven by political uncertainty and international tensions. At the same time, investors spooked by the instability sold off Turkish government bonds, sending their prices spiraling downwards.

Meanwhile, locals feeling the pinch as their hard-earned cash bought increasingly fewer goods turned to the perceived safety of shiny yellow metal (as did the Turkish central bank), with demand up 34% last quarter. It’s perhaps a sign of the times in Turkey that figures out on Thursday showed demand elsewhere around the world at its lowest in a decade.

Why should I care?

For markets: Investors will be watching other emerging markets closely…

With global economic growth potentially faltering, some investors have looked to park their cash in the up-and-coming players on the international scene. But Argentina, South

Africa and Russia have all shown signs of stress recently – laying bare the risks investors take when sinking money into markets that can exhibit sharp movements in the prices of currency and government bonds in stark contrast to the more boring but stable developed markets of Europe or the US.

The bigger picture: Currency moves have a significant impact on international companies.

Companies that sell products around the world often see a change in the value of currencies affect their earnings. For European companies, a stronger euro can be a major pain, as their products become more expensive abroad. Such woes beset the likes of luxury goods merchants Hermes and pharmaceutical company Bayer last quarter, both of which reported earnings on Thursday and warned that a stronger euro may stymie customer demand overseas.

Originally posted as part of the Finimize daily email.

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