The recent souring of relationship between the United States and Turkey and the consequent plunge in lira appears to be rattling global markets more than was probably feared. World stocks touched a one-month low to start this week as investors dumped equities, especially the ones from emerging markets and sought shelter under safe havens.
On Aug 10, President Trump tweeted that he has doubled steel and aluminum tariffs against the country. Turkey is, in any case, facing U.S. sanctions for its arrest of U.S. pastor Andrew Brunson in 2016. In reply, Turkish president Recep Tayyip Erdogan came up with a non-conciliatory tone against the United States. Plus, Turkey has intensified its relationship with Russia and Iran; both countries are in disagreement with the United States right now.
Apart from the U.S.-Turkey standoff, with a wide current account deficit and insufficient currency reserves, Turkish President Recep Tayyip Erdogan’s authoritarian takeover of the economy played its role in sending lira to a multi-year low.
Investors should note that Erdogan is a low interest rate person and is at odds with the country’s central bank on this issue. Erdogan gaining unlimited power is feared to be influencing the Central Bank governor into lowering interest rates.
In a country plagued by double-digit inflation, widening current account deficit and plunging currency, this seems a risky bet for most investors and analysts (read: Erdogan Victory Takes Turkish ETF to 9-Year Low).
Global Market Bloodbath
Turkey’s capacity to repay foreign-currency debt has upset the global equity markets. Turkey ETF TUR slid 14.5% on Aug 10, while the lira slumped as much as 17%. "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," per chief global economist at Capital Economics.
The 10-year U.S. Treasury yield dropped 6 basis points to 2.87% on Aug 10 from the day before. The S&P 5000-based fund SPDR S&P 500 ETF (SPY - Free Report) lost 0.7% on Aug 10, SPDR Dow Jones Industrial Average ETF (DIA - Free Report) shed roughly 0.7%, all world-ETF iShares MSCI ACWI ETF (ACWI - Free Report) fell about 1.2%, Vanguard FTSE Europe ETF (VGK - Free Report) retreated around 2.2%, iShares MSCI Eurozone ETF (EZU - Free Report) lost about 2.9%, iShares Asia 50 ETF (AIA - Free Report) dived around 1.9% and iShares MSCI Emerging Markets ETF (EEM - Free Report) fell more than 2% (read: Profit From Turkish Turmoil With These Global Inverse ETFs).
U.S. Equity ETFs Resilient to Turkey Concerns
However, there are some equity ETFs that gained at least 1% on Aug 10, indicating that these products are much more resilient to Turkey concerns.
Legg Mason US Diversified Core ETF – Up 2.4%
The fund is for investors, who are seeking a holding with the potential for improved risk management. The fund charges 30 bps in fees.
Hartford Multifactor Low Volatility US Equity ETF – Up 1.5%
The fund looks to offer the performance of U.S. equities with up to 25% less volatility. The fund charges 22 bps in fees (read: 5 ETF Ways to Bet on China's New Tariff Threats).
USCF Summer Haven SHPEI ETF (BUY - Free Report) – Up 1.3%
The underlying index looks to track the long-term return characteristics of diversified private equity allocations. It is designed to consider publicly-traded companies that has characteristics similar to the companies that private equity firms have so far picked for investment, as well as are likely to select for investment in the future. The fund charges 95 bps in fees.
Invesco DWA Consumer Cyclicals Mom ETF (PEZ - Free Report) – Up 1%
The underlying DWA Consumer Cyclicals Technical Leaders Index recognizes U.S. companies that are showing relative strength. The fund charges 60 bps in fees.
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