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Mark Mobius on weaker Turkish lira, investing in emerging markets


An increase in interest rates in America may make Turkey a more vulnerable country, Mark Mobius, a prominent investor in emerging markets said Tuesday.

Mobius stated that it could, “Yeah,” to CNBC’s.Closing BellResponding to a question regarding whether sharp depreciation was seen in the Turkish currency — the lira — could spread to other countries.

Investor Mobius Capital Partners’ founding partner said, “With higher interest rate in the U.S. all these other countries who have debt in dollars are going to be hit.”

The Turkish lira crashed to a record lowRecep Tayyip Erdan, President of Turkey, defended the central bank’s ongoing contentious interest rate reductions amid rising inflation by defending them Tuesday

Mobius was not able to specify the other countries most at risk from a currency crisis. He said that the good news was that many emerging markets had borrowed more money in local currencies since 1997’s Asian financial crisis.

Currency crisis: Risk

Nomura, an investment bank, released last week a report that found the top four emerging markets at greatest risk from an exchange rate crisis: Sri Lanka, Turkey, Romania and Turkey.

This analysis included indicators like external debt percentage (gross domestic product), foreign currency reserves to imports ratio, and the stock market index.

“Looking forward, the possibility of the Fed normalizing its monetary policy while China is deepening their economic downturn isn’t a very good combination. [emerging markets]”Yes,” Nomura stated in his report last week.

The U.S. Federal ReserveIt is scheduled to start tapering the pace of its asset purchasesThe month is April. While most Fed officials say they will not consider raising rates before the taper is over, the markets were looking for a quicker timeline. However, the first hike has been priced in for June 2022.

Nomura said that this comes as emerging markets confront other problems such as increasing food prices and growing fiscal deficits.

Mobius’ investment picks

Mobius said that higher interest rates do not necessarily indicate a “big downturn in the markets.”

CNBC Pro: Stock pickings and investment trends

The investor stated that even in an environment where interest rates are rising, companies with good earnings and margins could still prosper. Taiwan and India were also his top markets.   

Mobius stated that a stronger currency might lead to higher exports from Turkey.

We have earnings in dollar and euro for the companies in Turkey that we control. He said that they are doing much better with the Turkish lira being weaker and lower, as their costs have been lower.

— CNBC’s Natasha Turak, Jeff Cox and Thomas Franck contributed to this report.