The Turkish lira is facing its biggest annual fall since 2008 and is nearing new record-lows, as foreign investment continues to leave the country.
Investors from abroad have withdrawn $7.6 billion in assets this year, according to Bloomberg. This includes $1.4 billion in November, the month President Erdogan’s Justice and Development Party (JDP) managed to win back the majority.
At first, market reaction was positive to Erdogan’s party win, but the escalation of tension with Moscow over the downed Russian warplane in Syria has shaken investors' nerves. Russia responded with measures intended to hit the Turkish economy where it hurts most, its tourism industry and exports to Russia.
“Markets have indeed welcomed the recent election, but I think they may be overly sanguine," William Jackson, senior emerging markets economist at London’s Capital Economics told Bloomberg.
Big external debt makes Turkey vulnerable to shifts in investor feelings once the US starts hiking interest rates, weighing on the Turkish lira and government bonds, he said.
Analysts predict the lira will also continuing its descent. According to Per Hammarlund, chief emerging markets strategist at SEB in Stockholm, the currency will fall 3.7 percent to three lira against the US dollar in December.
London’s Capital Economics’ Jackson predicts an 11 percent decline by the end of 2016 for the lira, saying it will fall to 3.25 against the dollar.
In September, the lira fell to a record low of 3.0752 against the greenback. The Turkish currency won back eight percent through November 20, but last week’s slowdown extended the slide to almost 20 percent this year.
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