Turkey issues spook markets

A FINANCIAL crisis in Turkey is spooking global markets.

Much of the early action yesterday was in currencies as the euro moved lower while the Turkish lira took another slide to alltime lows around ¤7.24 at one stage.

The lira found just a sliver of support when Turkish Finance Minister Berat Albayrak said the country had drafted an action plan to ease investor concerns and the banking watchdog said it limited swap transactions.

Yet the United States dollar was still up almost 10% on the day at 6.9993 lira. This time last month it was at 4.8450.

The currency tumbled on worries about Turkish President Tayyip Erdogan’s increasing control over the economy and deteriorating relations with the United States.

‘‘The plunge in the lira which began in May now looks certain to push the Turkish economy into recession and it may well trigger a banking crisis,’’ Craigs Investment Brokers Partner Chris Timms said yesterday.

‘‘This would be another blow for EMs [emerging markets] as an asset class, but the wider economic spillovers should be fairly modest, even for the euro zone,’’ he said.

Turkey’s annual gross domestic product of about $US900 billion (NZ1.4 trillion) was just 1% of the global economy and slightly smaller than the Netherlands’ gdp.

The Turkish equity market was less than 2% of the UK market in size, and only 20% was held by nonresidents, he said.

The Argentine peso and South African rand were also caught in the crossfire.

‘‘Contagion risks centre on Spanish, Italian and French banks exposed to Turkish foreign currency debt, as well as Argentina and South Africa,’’ ANZ analysts warned.

‘‘Turkey’s massive pile of corporate debt denominated in foreign currencies, but a rapidly sliding currency, and inflation that’s threatening to go exponential is a toxic combination.’’