(Bloomberg) -- Goldman Sachs (NYSE:GS) Asset Management has a simple take on investing in Turkey these days: "No thanks."
That’s how Sam Finkelstein, the firm’s emerging markets chief, responded today when asked if he owned Turkish assets. “One has to be nervous about Turkey,” he said in an interview on Bloomberg television. “They are doing everything wrong.”
The lira plunged 22 percent this year after a series of policy missteps including the central bank’s decision to hold interest rates unchanged to arrest the currency’s slide. Then, yesterday, the U.S. threatened anew to impose sanctions on its NATO ally for the imprisonment of an American pastor, sending Istanbul markets reeling.
“It is a vicious cocktail,” Finkelstein said.
The backdrop is bleak. Amid local political turmoil, many international investors say Turkey is most at risk to rising U.S. interest rates as inflation accelerates and the current account deficit widens. Spiking prices and the lira’s plunge leaves no room for the central bank to cut rates, while the cost of financing the deficit increases on par with higher U.S. rates.
Markets also lack confidence in the government. One reason, Finkelstein said: President Recep Tayyip Erdogan named as economy czar his son-in-law, rather than a mainstream economist. Erdogan has pushed out market-friendly cabinet members since being sworn in to another term this month. Stocks, bonds and the lira plunged after the central bank kept rates on hold, a decision that Nomura economist Inan Demir said confirmed the “worst fears” of markets.
The standoff with the U.S. is just another unwelcome complication. President Donald Trump said he will impose “large sanctions” on Turkey over the detention of Andrew Brunson, the pastor accused of aiding a failed 2016 coup.