Investment guru says Turkey’s economy not ‘fragile’
LONDON - Anadolu Agency
“I don’t agree with the ‘fragile five’ thesis since it simplifies the very complex economic structure of those five countries and in Turkey’s case, it denigrates the very real strengths of the economy,” he said.
The “fragile five” concept was created by analysts at Morgan Stanley in 2013. It grouped Turkey, Mexico, Brazil, Indonesia and South Africa as emerging markets under particular economic pressure.
Mobius said Turkey’s economy was “very vibrant, with a well-trained and educated workforce” as well as “excellent managers, capable of entering global markets effectively,” adding, “Therefore we cannot say that it is ‘fragile.’”
Mobius also explained how the U.S. Federal Reserve’s projected interest rate increase would affect emerging markets.
“The perception of risk is rather low since the idea of an interest rate hike has already been discounted by the market. The expectation is that, if a rate hike comes, it will be small. The real risk comes if the interest rate hike is large, and larger than expected. In that case, all markets, including emerging markets, will be impacted. We must remember that the impact of interest rate rises is just one of the variables that impact markets and it is important to note that, in the past, in many cases, markets actually rose in the face of higher interest rates because of other extenuating circumstances,” Mobius said.
“The dollar pressure will now be reduced since the amount of depreciation of several emerging market currencies has gone too far so that many of the currencies are severely undervalued on the price parity basis,” he said.
“We must remember also that the U.S. government does not want a dollar that is too strong, since that will harm the U.S. economy. The challenge facing the U.S. Federal Reserve is how to raise interest rates in the face of falling interest rates in Europe, Japan and China,” he added.
Oil prices
Mobius said he was not dismayed by the sharp fall in oil prices, a movement which directly affects emerging market exporters like Brazil.
“Oil prices are primarily driven by sentiment. If you look at the actual supply and demand trends over the last 20 years, in each year, the actual supply-demand varies no more than 5 percent either way. However the actual market price of oil has had a tremendous range and volatility. We can, therefore, expect oil prices to reach a medium trend-line which will probably be higher than where it is now, but it won’t go dramatically higher. It’s important to note that given the high growth particularly in the two most populous nations in the world, India and China, the demand for oil and oil products will continue to rise despite the introduction of alternative energy sources which are expected to grow, but not replace oil in a short time period. This is also the case of coal, where coal-fired plants continue to be built because in many parts of the world it is the most economic form of electric power generation.”
‘Grexit’ creates ‘worse crisis’
Mobius said that a ‘Grexit’ (Greece’s exit from the eurozone) would create a worse crisis than the country’s current debt problem.
“I believe that the debt situation in Greece is not as important as the necessity for Greece to remain in the European Union and to continue using the euro. The euro system provides tremendous economic benefits for people in Europe, and the euro has become a reserve currency of importance. Any crack in the structure caused by the departure of Greece would be tragic,” he said.