Turkey's lira tumbled to a new record low of 8.6 versus the dollar on Friday as it took a hit from global inflation concerns, expectations that the central bank will soon cut rates and worries over possible early elections.
The currency - by far the worst performer in emerging markets (EMs) this year - weakened beyond the intraday low of 8.58 that it touched in November. It recouped some losses and was at 8.562 against the US currency at 0834 GMT.
It also logged a new nadir of 10.4696 against the euro.
The lira has tumbled 16 per cent since mid-March when President Tayyip Erdogan abruptly fired a hawkish and market-friendly central bank chief and replaced him with Sahap Kavcioglu, who had criticised recent rate hikes.
Despite Turkish inflation having risen above 17 per cent in April, the bank is expected to lower its policy rate from 19 per cent in coming months.
But as the world emerges from the pandemic, global inflation has risen and pushed up US bond yields. That in turn pulls funds from emerging markets such as Turkey, hitting the lira and putting more upward pressure on domestic prices due to its heavy imports.
"Earlier than expected (monetary) tightening in advanced economies is the most serious risk for Turkey because the inflationary pressures are mounting across the globe," said Hakan Kara, former chief economist at the central bank who is now at Bilkent University.
"If there was an early tapering (of US Federal Reserve asset purchases) that would not be good news for emerging economies, especially for the ones facing external fragilities," he said on a World Bank panel on Thursday.
The lira has slipped for four days straight in part, bankers said, because of calls for early elections from opposition parties in the face of uncorroborated allegations against government officials from a mafia boss.
The series of accusations this month by Sedat Peker, whose YouTube videos have been watched by millions, have forced Mr Erdogan to defend his interior minister and insist that elections will not happen until 2023 as scheduled.
The lira has shed more than half its value in the last three years as Mr Erdogan has ousted three central bank governors and his government has used unorthodox policies which analysts say have left the economy more vulnerable to crises.
Foreign currency reserves plunged in the last two years as state banks sold about $128 billion in dollars to stabilise the lira, leaving Turkey potentially vulnerable if companies and banks have trouble meeting high foreign debt obligations.
Naci Agbal, who preceded Mr Kavcioglu at the central bank, served less than five months as governor and was appointed a day after the lira logged its last record low in November.
Mr Agbal's aggressive rate hikes attracted foreign investors and briefly turned things around for the currency.
But Tatha Ghose, analyst at Commerzbank, said Mr Erdogan's public opposition to high rates and his rapid leadership shuffles have hurt the central bank's credibility and led to a "familiar lira spiral".
"Each burst of depreciation risks triggering a fresh lira crisis as it begins to feed back into higher inflation, which the central bank cannot fight off because it is unable to credibly hike rates," he said in a client note.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
INDIA SQUADS
India squad for third Test against Sri Lanka
Virat Kohli (capt), Murali Vijay, Lokesh Rahul, Shikhar Dhawan, Cheteshwar Pujara, Ajinkya Rahane, Rohit Sharma, Wriddhiman Saha, Ravichandran Ashwin, Ravindra Jadeja, Kuldeep Yadav, Mohammed Shami, Umesh Yadav, Ishant Sharma, Vijay Shankar
India squad for ODI series against Sri Lanka
Rohit Sharma (capt), Shikhar Dhawan, Ajinkya Rahane, Shreyas Iyer, Manish Pandey, Kedar Jadhav, Dinesh Karthik, Mahendra Singh Dhoni, Hardik Pandya, Axar Patel, Kuldeep Yadav, Yuzvendra Chahal, Jasprit Bumrah, Bhuvneshwar Kumar, Siddarth Kaul
