The Turkish lira may weaken “substantially” as investors shun the currencies of nations with larger-than-average current account deficits amid a sell-off of emerging-market assets, according to Goldman Sachs Group.

“We have long been arguing that emerging-market countries with large current account deficits could face rapid depreciation,” Goldman economists Thomas Stolper in London and New York-based Jens Nordvig wrote in a note on Thursday. “Slowing global growth momentum could potentially provide the trigger for such a shift.” Stolper declined to give a specific forecast in a telephone interview yesterday.

The lira rose 21 percent against the dollar last year, the most of 26 emerging-market currencies tracked by Bloomberg, as the policies of Prime Minister Recep Tayyip Erdogan’s government attracted investors and tourists. At the same time, the current account deficit grew to a record $35.7 billion in the 12 months through November, about 7 percent of gross domestic product. Central bank Governor Durmus Yilmaz called it the country’s “weak underbelly.”

The lira dropped to 1.2144 as of 2.55 p.m. in Istanbul yesterday, from 1.2071 yesterday, taking its decline this year to 3.7 percent. The lira fell against all 16 most-traded currencies this year except the South African rand.

Emerging-market currencies are weakening as concern the US economy is headed toward a recession is prompting investors to cut higher-yielding assets. The South African rand fell to the lowest in 16 months against the dollar yesterday and the Hungarian forint set a 15-month low versus the euro yesterday. Romania’s leu slipped to a three-year low versus the euro on January 25.

“The recent sharp weakening of the rand and the forint point to a shift in investors’ sentiment, which could spread to the lira,” Stolper and Nordvig wrote. (Bloomberg)