Turkish financial crisis sends fear through global financial markets from India to Hong Kong

Analysts said other emerging market economies were in an ominously similar position to Turkey

Turkey’s descent into economic crisis roiled global financial markets on Monday.

The lira slumped to as low as 7.19 to the dollar on Sunday, down from from 6.4 at the end of last week, when the US hit the country with a doubling of steel tariffs.

On Monday morning the Turkish currency was still trading at only 6.84, more than 25 per cent lower than seven days earlier and around 45 per cent down since the start of the year.

The country’s emergency contributed to the punishment of Asian shares overnight. The Hang Seng Index in Hong Kong lost 1.5 per cent and Tokyo’s Nikkei fell 2 per cent

The FTSE 100 also dropped, and was down more than 0.5 per cent by midday.

“Investors remained fearful on Monday, the Turkish lira’s precipitous plunge - and the concerns that a financial crisis in the country would ripple through the rest of Europe - keeping the markets in the red,” said Connor Campbell, financial analyst at Spreadex.

Loss of confidence in the lira also spread to the South African rand, which fell by as much as 7 per cent against the dollar on Monday.

The Indian rupee sank to a record low against the dollar of 69.8.

Safe haven currencies such as the dollar and the Swiss franc gained.

The index of European banks was down 1.2 per cent, reflecting growing concerns about the exposure of the continent’s lenders to default risk on Turkish loans.

The shares of BBVA, UniCredit, BNP Paribas were all down sharply.

Analysts said other emerging market economies were in an ominously similar position to Turkey.

“The actual root cause is shared by quite a few nations, of which Argentina is the most obvious example,” said Edward Park of the investment manager Brooks Macdonald.

“Turkey has tripled its US dollar liabilities in the last 10 years, taking advantage of cheap money to refinance itself. However, at the start of the year the US federal reserve started to embark on quantitative tightening, essentially withdrawing its liquidity, at the same time as raising rates, which means it is much more expensive to finance in US dollars which is a problem for emerging markets. With Turkey doing relatively little to calm investors, it will certainly be a volatile few days.”

“Nations with the highest non-bank dollar obligations as a percentage GDP goes like this: Chile, Mexico, Turkey, Indonesia, Argentina, Russia, Malaysia, South Africa, Brazil and South Korea,” said Peter Rosenstreich of the online Swiss lender Swissquote Bank.

“Should this global driver continue, traders will go down the list.”

Turkey’s president, Recep Tayyip Erdogan, blamed the economic crisis at the weekend on an “underhand plot” by Donald Trump.

His finance minister, Berat Albayrak, is due to outline an economic recovery plan later on Monday to reassure markets, after an intervention on Friday failed to stem the panic.

The Turkish central bank, which many investors feel has effectively lost its independence, unveiled a package of measures early on Monday designed to ease the pressure on the nation’s financial system.