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Turkey Crisis Spills Over to Wall Street: Winners & Losers
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President Trump intensified his spat with Turkey by authorizing higher tariffs on metal imports. This is his latest jab at that NATO ally that deepened mayhem in Turkish financial markets, sending lira into a freefall. This, in turn, increased the risk of default on foreign-currency loans. U.S. and European banks, having substantial exposure to Turkey, have thus come under tremendous pressure.
But, the US dollar presently strengthened to its firmest level against major rivals on concerns about the health of Turkey’s financial system. A stronger dollar bodes well for domestic companies as their revenues aren’t affected compared to their large-cap counterparts. Needless to say, multi-nationals lose their competitive advantage as foreign customers see U.S. goods as more expensive than non-U.S. goods.
Here is a look at the Turkey turmoil’s big winners and losers —
Trump Doubles Tariffs Against Turkey
Trump recently approved higher tariffs on imports from Turkey, levying a 20% duty on aluminum and 50% on steel. Trump said that “I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar!” He acknowledged that “our relations with Turkey are not good at this time!” The White House and Ankara are at loggerheads for quite some time over a couple of issues, including the detention of American pastor Andrew Brunsonin Turkey and the Syrian civil war.
The countries, earlier, have been in odds. The Trump administration as early as March had imposed tariffs of 25% and 10% on steel and aluminum imports on most trading partners, including Turkey. To which, Turkey responded by applying duties on $1.8 billion of U.S. goods including coal, paper, nuts, whiskey, autos, machinery and petrochemicals.
ErdoganLashes Out at US, Lira Sinks
President Recep Tayyip Erdogan, in a speech to supporters in the Black Sea city of Trabzon, said Turkey won’t succumb to U.S. pressure, and that Trump is jeopardizing the countries’ long-standing alliance.
Erdogan urged Turks to buy plunging lira exchanging any foreign currency, agreeing that the country is facing an economic war. Erdogan said on national televisions that “if you have dollars, euros or gold under your pillow, go to banks to exchange them for Turkish lira. It is a national fight.”
Investors are hoping against hope that Erdogan’s comments would provide some support to lira, which is fast losing value. Lira currently has extended its losses to trade at 6.2 to the dollar, a loss of 11.5%. Earlier, it had dropped to an all-time low of 7.24, before paring some losses.
This year, lira has already lost 40% against the dollar after Erdogan’s efforts to lower interest rates to stimulate the economy have raised concerns about how effectively the nation’s central bank could function as traders flee the currency.
Big Banks in Doldrums
As Turkey’s currency woes rise, shares of U.S. banks and their European counterparts plummet. The lira’s relentless drop has raised the cost of goods for Turkish people, denting investors’ confidence on the country. Turkey could easily head into recession and debt crisis, requiring a bailout from the International Monetary Fund. Lest we forget, the currency is falling amid an inflation rate that is as high as 16% and is capable of causing a lot of damage to the economy, making banks exposed to the region vulnerable.
Among major U.S. bank stocks, Citigroup Inc. (C - Free Report) , Bank of America Corporation (BAC - Free Report) , The Goldman Sachs Group, Inc. (GS - Free Report) , JPMorgan Chase & Co. (JPM - Free Report) , Morgan Stanley (MS - Free Report) and Wells Fargo & Company (WFC - Free Report) shed 2.3%, 1.3%, 1.8%, 0.9%, 2.1% and 0.7%, respectively, as lira plunged against the dollar.
European Central Bank, in the meantime, expressed concerns about European banks like BNP Paribas and UniCredit S.p.A. having significant operations in Turkey. And why not? A drop in lira raises the risk of default on foreign currency loans. Shares of both the financial institutions have declined more than 4%.
Dollar Strength Boosts Domestic Players
Small-capitalization firms, incidentally, are set to benefit from wider domestic revenue exposure which insulates them from the effects of a stronger dollar (read more: Dollar Strengthens on Turkey's Trouble: Top 5 Gainers).
Meanwhile, large-caps that derive a lion’s share of their earnings from overseas will be dealt the biggest blow. Such companies are exposed to foreign exchange risks between the United States and other countries they are operating in. Thus, if dollar gains strength, it tends to dent foreign sales of such companies.
Given this bullishness, some of the top-ranked domestic companies one could consider are Armstrong Flooring, Inc. , Bridgepoint Education, Inc. , Summer Infant, Inc. , BG Staffing, Inc. (BGSF - Free Report) and Atlantic Power Corporation . These stocks flaunt a Zacks Rank #1 (Strong Buy) and a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Image: Bigstock
Turkey Crisis Spills Over to Wall Street: Winners & Losers
President Trump intensified his spat with Turkey by authorizing higher tariffs on metal imports. This is his latest jab at that NATO ally that deepened mayhem in Turkish financial markets, sending lira into a freefall. This, in turn, increased the risk of default on foreign-currency loans. U.S. and European banks, having substantial exposure to Turkey, have thus come under tremendous pressure.
But, the US dollar presently strengthened to its firmest level against major rivals on concerns about the health of Turkey’s financial system. A stronger dollar bodes well for domestic companies as their revenues aren’t affected compared to their large-cap counterparts. Needless to say, multi-nationals lose their competitive advantage as foreign customers see U.S. goods as more expensive than non-U.S. goods.
Here is a look at the Turkey turmoil’s big winners and losers —
Trump Doubles Tariffs Against Turkey
Trump recently approved higher tariffs on imports from Turkey, levying a 20% duty on aluminum and 50% on steel. Trump said that “I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar!” He acknowledged that “our relations with Turkey are not good at this time!” The White House and Ankara are at loggerheads for quite some time over a couple of issues, including the detention of American pastor Andrew Brunsonin Turkey and the Syrian civil war.
The countries, earlier, have been in odds. The Trump administration as early as March had imposed tariffs of 25% and 10% on steel and aluminum imports on most trading partners, including Turkey. To which, Turkey responded by applying duties on $1.8 billion of U.S. goods including coal, paper, nuts, whiskey, autos, machinery and petrochemicals.
Erdogan Lashes Out at US, Lira Sinks
President Recep Tayyip Erdogan, in a speech to supporters in the Black Sea city of Trabzon, said Turkey won’t succumb to U.S. pressure, and that Trump is jeopardizing the countries’ long-standing alliance.
Erdogan urged Turks to buy plunging lira exchanging any foreign currency, agreeing that the country is facing an economic war. Erdogan said on national televisions that “if you have dollars, euros or gold under your pillow, go to banks to exchange them for Turkish lira. It is a national fight.”
Investors are hoping against hope that Erdogan’s comments would provide some support to lira, which is fast losing value. Lira currently has extended its losses to trade at 6.2 to the dollar, a loss of 11.5%. Earlier, it had dropped to an all-time low of 7.24, before paring some losses.
This year, lira has already lost 40% against the dollar after Erdogan’s efforts to lower interest rates to stimulate the economy have raised concerns about how effectively the nation’s central bank could function as traders flee the currency.
Big Banks in Doldrums
As Turkey’s currency woes rise, shares of U.S. banks and their European counterparts plummet. The lira’s relentless drop has raised the cost of goods for Turkish people, denting investors’ confidence on the country. Turkey could easily head into recession and debt crisis, requiring a bailout from the International Monetary Fund. Lest we forget, the currency is falling amid an inflation rate that is as high as 16% and is capable of causing a lot of damage to the economy, making banks exposed to the region vulnerable.
Among major U.S. bank stocks, Citigroup Inc. (C - Free Report) , Bank of America Corporation (BAC - Free Report) , The Goldman Sachs Group, Inc. (GS - Free Report) , JPMorgan Chase & Co. (JPM - Free Report) , Morgan Stanley (MS - Free Report) and Wells Fargo & Company (WFC - Free Report) shed 2.3%, 1.3%, 1.8%, 0.9%, 2.1% and 0.7%, respectively, as lira plunged against the dollar.
European Central Bank, in the meantime, expressed concerns about European banks like BNP Paribas and UniCredit S.p.A. having significant operations in Turkey. And why not? A drop in lira raises the risk of default on foreign currency loans. Shares of both the financial institutions have declined more than 4%.
Dollar Strength Boosts Domestic Players
Small-capitalization firms, incidentally, are set to benefit from wider domestic revenue exposure which insulates them from the effects of a stronger dollar (read more: Dollar Strengthens on Turkey's Trouble: Top 5 Gainers).
Meanwhile, large-caps that derive a lion’s share of their earnings from overseas will be dealt the biggest blow. Such companies are exposed to foreign exchange risks between the United States and other countries they are operating in. Thus, if dollar gains strength, it tends to dent foreign sales of such companies.
Given this bullishness, some of the top-ranked domestic companies one could consider are Armstrong Flooring, Inc. , Bridgepoint Education, Inc. , Summer Infant, Inc. , BG Staffing, Inc. (BGSF - Free Report) and Atlantic Power Corporation . These stocks flaunt a Zacks Rank #1 (Strong Buy) and a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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