Global markets stumble as traders dump equities amid growing Turkish crisis

“There’s a risk-off mood generally triggered by the Turkish currency sell-off, and we are seeing a wider sell-off now, and it’s looking pretty ugly in other emerging markets as well,” said Investec economist Philip Shaw.

He pointed to the rand and the Mexican peso, both down about 2.5% on Monday, as two examples of emerging markets hit by contagion.

“The plunge in the lira, which began in May, now looks certain to push the Turkish economy into recession, and it may well trigger a banking crisis,” said Andrew Kenningham, chief global economist at Capital Economics. “This would be another blow for EMs [emerging markets] as an asset class.”

Turkish credit default swaps — a hedge against financial turbulence — surged to their highest since the 2008 global financial crisis as the lira took its latest dive.

Euro hit

The eurozone has also been hit by Turkish woes, particularly after a report by Financial Times last week suggested the European Central Bank (ECB) is increasingly concerned about eurozone banks with exposure to Turkey.

The euro fell to a one-year low against the dollar on Monday and sank to a one-year trough against the Swiss franc as well. It hit a 10-week low to the yen around ¥125.45.

European stocks fell in early trade on Monday, with a pan-European index of shares down 0.5% and the banking stock index as much as 1.2% lower.