Let's Talk Turkey
- Emerging market stocks have been one of the worst performing asset classes this year with a loss of 10.13% through August 15th
- The dollar continues to strengthen as the Fed raises rates and shrinks its balance sheet, draining dollar liquidity and hurting foreign investments.
- For now, sentiment around emerging markets continues to deteriorate due to heightened trade war concerns and softer global leading indicators.
News about Turkey has dominated the headlines, with their stock market down over 50% this year in U.S. dollars terms, and the Lira collapsing. While there is concern that this turbulence could spread to other countries, few are confronting Turkey’s range of problems.
While the IMF has forecast that Turkey’s inflation rate will top 11% this year, that is double the rate of any other major emerging market, and most are still in growth mode. Keep in mind that Turkey’s economy is comparable in size to that of Illinois; we believe their issues can be contained and fixed over time and are not likely to derail the global economy. Also, the U.S. dollar is expected to decline over the medium-term which will become a tailwind instead of a headwind for emerging market performance. Fundamentals are better today than five years ago.
While emerging markets are down this year, they were the best performing asset class in 2017, returning 37.8%. In fact, over the last 20 months they added over 23%, and remain the best performing asset class over the 15 years ending December 31, 2017. Prudent investing is about time in the markets, not timing the markets!
Market returns YTD through 8/15/2018
- The S&P 500 +6.68%
- The S&P Small-Cap 600 +13.80%
- The U.S. Aggregate bond index -1.07%
- The MSCI EAFE developed market Index – 4.94%
- The MSCI Emerging Markets Index – 10.13%