In this IceCap Global Outlook, we provide an in-depth explanation of why we expect a financial, banking and currency crisis to re-escalate in Turkey, and the consequences of this crisis.
Many global investors consider Turkey to be an insignificant financial market and economy. They therefore believe that any concerns or stresses within the Turkish financial system are inconsequential to everyone else.
We disagree.
From a global perspective, the escalating financial crisis in Turkey has the potential to be the trigger event to ignite contagion to other markets, including those in the developed world.
Financial contagion is a curious phenomenon. It always happens when few are expecting it. As well, the cause or trigger event, is usually only known or confirmed with hindsight.
Today, the continual rise in many equity markets has convinced investors that the worst of the Covid-19 crisis is behind us. In some ways, investors have once again been lulled to sleep with dreams of a no-risk financial World.
The economic and financial capital impairments resulting from the covid-19 crisis, have yet to truly appear in the global system. Cracks remain across all markets, economies, and financial systems, and the probability of the next wave of stress to appear is significantly higher than many expect.
A crisis triggered by Turkey is one of these risks.