Turkey's national currency, the lira, continues to trade near all-time lows against the U.S. dollar, and the country is approaching an economic crisis, the BBC reported. Here's what investors need to know Monday morning.
- Jose Luis Daza, chief investment officer at QFR Capital Management.
- Vincent Deluard of INTL FCStone Financial.
- Mark Newton, technical analyst at Newton Advisors.
Daza: Potential Credit Crisis
Turkey's financial problems are so large, they will require "something very special to short-circuit the crisis," Daza said on CNBC's "Squawk Box" segment Monday. As it stands now the country's financial problems are limited to its currency, but the situation could transform into a credit crisis, as many Turkish companies owe debt denominated in U.S. dollars, he said.
Turkey's central bank holds the lowest level of net international reserves of all emerging markets with a very large current account deficit, Daza said. The government needs a significant amount of funding from abroad just to maintain its current spending needs, he said.
Deluard: 3 Companies With Biggest Exposure
The three companies with the largest exposure to Turkey's economy include France's BNP Paribas (OTC: BNPQY), Italy's UniCredit SpA (OTC: UNCFF), and Spain's Bureau Veritas SA (OTC: BVRDF), Deluard separately said during Monday's "Squawk Box" segment.
It is important to keep in mind that bank exposure to Turkey comes from investments in joint ventures with local banks, Deluard said. European banks can simply "walk away" from the country if the currency decline continues and let their Turkish partners "deal with the mess," he said.
Foreign banks will need to assume an unpleasant write-off in Turkey, but even under the worst-case scenario there is "limited liability," he said. Many European banks are trading below one times their book value, which implies a scenario of this magnitude is already priced in, he said.
Newton: Don't Get Burned
In conjunction with Turkey's currency declines, the Turky Invststbl Mrkt (NASDAQ: TUR) ETF is seeing its worst annual performance so far. Investors looking to buy the dip on a belief in limited downside may want to reconsider, Newton said during a recent CNBC "Trading Nation" segment.
The ETF, which holds a basket of Turkish stocks, is flirting with the lowest levels seen since the 2008 and 2009 financial crisis, Newton said. From a short-term perspective, a "capitulation-type low is potentially at hand," and from a technical point of view a bounce back to the $25 to $27 level could be seen, he said. In the intermediate-term, investors would need to see signs of stabilization before buying the ETF, as the downtrend is "very well-established."
The expert said he "wouldn't touch this with a 10-foot pole for anything more than three to five days."
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