The Turkish lira is falling again — but stock market investors are returning to Turkey at their fastest rate in half a decade

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Credit rating agencies S&P and Moody's both downgraded Turkey late Friday, stoking fears about the state of the Turkish economy.
UBS said Turkish stocks saw their biggest investor inflows since early 2013 last week as investors "buy the dip."

LONDON — The Turkish lira is weakening against the dollar on Monday morning as investors continue to fret over the state of the country's economy.

The dollar is up 1.7% against the lira to 6.0853 as of 11:04 a.m. BST (6:04 a.m. ET):

Market commentators said the decline was being driven by the downgrade of Turkey's currency by credit rating agencies S&P and Moody's late Friday.

Michael Hewson, the chief market analyst at CMC Markets UK, said in an email on Monday morning: "Friday’s downgrade of Turkey by S&P and Moody’s further into junk territory was largely expected by the markets, however, it is also likely to prompt a similar downgrade to Turkey’s banks in the coming days, who are already struggling with the measures taken by Turkey’s authorities to support the lira.

"By making the currency more difficult to trade and limiting the ability of both domestic and overseas banks to hedge their currency exposure, the decline in the currency could well regain its pace in the coming days, after last week’s late rebound."

Turkey has been struggling to halt the decline in the lira amid a diplomatic spat with the US that has seen tariffs' levied by both sides.

The dip in the lira and warnings about continued weakness come despite a huge inflow of cash into Turkish stocks over the last week.

Geoff Dennis and Alexey Ostapchuk at UBS said in a note on Monday that Turkish equities received their strongest inflows of cash for five and a half years in the week to August 15.

"Korea ($217m) received the biggest inflow, followed (rather bizarrely) by Turkey, where a $191m inflow was the biggest since the first week of January 2013," the pair wrote.

"A surge in Turkey inflows suggests that investors were 'buying the dip' amidst the currency crisis."

UBS said Turkey has now replaced Colombia as the "most crowded" emerging market for stock investors.