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Mark Mobius on the weaker Turkish lira and investments in emerging markets

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Given the prospect of higher interest rates in the US, Turkey may not be the only country facing a currency crisis, prominent emerging markets investor Mark Mobius said Tuesday.

“Yes, of course it can,” Mobius said to CNBC’s “Closing Bell” when asked whether the strong devaluation of the Turkish currency – the lira – could spill over to other countries.

“With higher interest rates in the US, all these other countries that have dollar debts will be hit,” said the investor, who is a founding partner of investment firm Mobius Capital Partners.

The Turkish lira fell to record lows on Tuesday as the country’s president Recep Tayyip Erdogan defended his central bank’s ongoing controversial rate cuts amid rising double-digit inflation.

Mobius did not specify which other countries are prone to a currency crisis. The good news, however, is that many emerging markets have borrowed more in their local currency since the 1997 Asian financial crisis.

Risk of a currency crisis

An analysis published last week by the investment bank Nomura found that Egypt, Romania, Turkey and Sri Lanka are the four emerging economies most at risk from an exchange rate crisis.

The analysis took into account indicators such as external debt as a percentage of gross domestic product, the ratio of foreign exchange reserves to imports and the stock market index.

“Looking ahead, the prospect of the Fed normalizing monetary policy amid the deepening economic downturn in China is not a particularly good combination for us [emerging markets]“Said Nomura in his report last week.

The US Federal Reserve will begin slowing its asset purchases this month. Most Fed officials have announced that they will not consider a rate hike, at least until the rate hike subsides, but the markets have been looking for a faster rate hike with the first rate hike now priced in for June 2022.

This came at a time when emerging economies were facing other challenges such as growing budget and current account deficits and rising food prices, Nomura said.

Möbius’ investment picks

Higher rates don’t necessarily mean “a big downturn” in the markets, Mobius said.

CNBC Pro’s Stock Picks and Investment Trends:

Companies with strong profits and good margins would still do well in an environment of rising interest rates, the investor said, adding that India and Taiwan are its two preferred markets.

Regarding Turkey, Mobius said a weaker currency could lead to better exports out of the country.

“The companies we own in Turkey make profits in dollars, in euros. And with a lower and weaker Turkish lira, they are better off because their cost is much lower, ”he said.

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

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