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NEW DELHI: Turkey could be at a risk of a major default, as it is sitting on very high foreign currency debt, said Russell Napier, Independent Investment Strategist Co-Founder of ERIC.
In an interview with Tanvir Gill of ETNow, Napier said India’s macros are better than other emerging markets and Prime Minister Narendra Modi is in a strong position.
He said Modi has built incredible credentials for his government.
Yet, it may be hard for India to escape a Turkey contagion.
"Turkey has done some really silly things which all the emerging markets have not done and the EMs will be penalised because one of them has misbehaved," Napier said.
Turkey owes $467 billion to investors and it will be hard for the country to pay that debt, Napier said.
The Turkish lira has weakened 35 per cent against the US dollar this year, with losses fuelled by a deterioration in ties between the NATO allies and fears of President Recep Tayyip Erdogan’s influence over monetary policy.
The currency has rebounded strongly over the past two days after hitting a record low of 7.24 at the start of the week, thanks to the central bank’s measures to support it and Qatar's pledge to invest $15 billion in Turkey.
Turkey has always been more risky market within broader emerging markets basket and a fallout of its default will be on European banks, he said.
The dollar has gained strength over the past few weeks due partly to the Turkey crisis and a strong dollar is never good for emerging markets equities, as people tend to follow the dollar for reasons beyond know, he said.
Yuan devaluation could be the worst part of all the ramifications emanating from the Turkey crisis, Napier said.
“China is making the yuan flexible to help competitiveness in global trade.
It may be able to grab a big share of global trade with the currency devaluation,” he said, adding that that rupee weakness may be offset by weakness in the yuan.
