An Emerging Markets Fund Manager Describes What's Happening In Turkey Right Now

Joe Weisenthal (0:09)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:14)

And I'm Tracy Alloway.

Joe Weisenthal (0:16)

Tracy, it's great to both be back, because last two episodes, we had to do it solo.

Tracy Alloway (0:22)

It's been a long two weeks.

Joe Weisenthal (0:25)

It has been a long two weeks. And in these last two weeks, while we sort of alternated who was on vacation, a very interesting and important eco market story has been bubbling up.

Tracy Alloway (0:40)

Yeah. Shall I go ahead and tell everyone what it is?

Joe Weisenthal (0:43)

Yeah, you can do the big reveal.

Tracy Alloway (0:45)

Thank you. For anyone who hasn't been watching the markets at all for the past couple of weeks, we've seen really a global sell-off, but sparked by what's been going on in Turkey.

Joe Weisenthal (0:57)

Yeah, absolutely. And Turkey is one of these stories, the currency plunge there or the political situation there, that seems to be jumping out of the finance realm by which, I mean, people who don't normally pay attention to emerging markets and currencies are sitting up and paying attention.

And so I think that makes for an excellent topic for our podcast.

Tracy Alloway (1:20)

Yeah, it's pretty hard to ignore when a country's currency falls by, I think, 25% on a trade-weighted basis.

That's pretty amazing. And you've seen some really dramatic scenes in Turkey. For instance, we've seen tourists lining up outside of luxury handbag stores in order to buy those bags on the cheap before the stores actually have a chance to adjust their pricing. So clearly, a lot going on, a lot of human interest in the story as well, and a lot of economic and financial interest, some people even drawing the parallel to the 1997 Asian financial crisis.

Joe Weisenthal (1:59)

Right, and beyond just the vivid images, also some very interesting geopolitical stuff.

Given Turkey's, where it sits geographically, it's a NATO member, the antagonism between Erdogan and Trump, part of it due to the holding of a US pastor. So just lots of interesting threads to pull on kind of a complex situation. And so because of that, I'm very excited about the guest we have on today who will explain it all to us.

Tracy Alloway (2:28)

Yep, our guest for today is an emerging markets veteran, really, and someone who has been warning, let's just say, about the situation in Turkey for some time. So it should be a really good discussion.

Joe Weisenthal (2:42)

Absolutely. So today we have the pleasure of talking to Paul McNamara.

He's the investment director of emerging market debt at GAM and a longtime watcher of Turkey and other emerging markets. I can't think of a better guess. So Paul, thank you very much for coming on.

Paul McNamara (3:00)

Thanks very much Joe and Tracy.

Joe Weisenthal (3:02)

So Paul, before we dive into the situation specifically in Turkey and your perspective on it, Tracy and I have known you a long time. People on Twitter know you're one of the sort of more outspoken and clear observers of emerging markets. But for those of you who aren't familiar with you, what is your background? How did you get into covering emerging market debt?

Paul McNamara (3:27)

Well, I kind of drifted into it. I spent a couple of years after university in Poland when that country was going through all its changes, the move over to capitalism, and kind of whetted my appetite. And then I managed to look into a job at what ultimately became GAM.

I mean, the most memorable thing was I started the job in March 1997

You know, and there was huge pressure to buy something. And what I decided to buy was Indonesia, which promptly collapsed, fell from 2,400 to 17,000 to the dollar.

Tracy Alloway (4:00)

So we're gonna have to ask you about all the people seeing parallels with what's happening in Turkey versus what happened in 1997 in Asia. But before we do, whenever we talk about emerging market investing, the thing that always comes up is, oh, there's no such thing as emerging markets as a whole, that each country is special in its own kind of way. So I guess just run us through what it means to actually be an emerging market investment director.

Paul McNamara (4:31)

I think there's a couple of things which distinguish EM from developed world. I mean, until recently the politics, but I suppose in the era of Trump and Brexit, we get wacky politics in both EM and DM. Two is the institutions are not as strong. A contract doesn't mean what a contract would necessarily mean in a developed country. There's a lot more reliance on trust and there's a lot less trust in the system.