Today, according to the Institute of International Finance, a banking trade group, corporate debt in foreign currencies is $5.5 trillion, the most ever.
And Turkey relies on such foreign-currency debt more than any other major emerging market. Corporate, financial and other debt denominated in foreign currencies, mostly dollars, represents about 70 percent of Turkey’s economy, according to the I.I.F. Turkish companies and real estate developers used borrowed dollars to pay for new factories, shopping malls and the skyscrapers that now define the Istanbul skyline.
The threat is that as the lira loses value, it becomes more expensive for Turkish companies to repay their dollar-denominated loans. Indeed, a growing number of companies in Turkey already have said they cannot repay these loans.
“Companies there just ignored all the risks and kept borrowing in dollars,” Mr. Lee said.
And that has the potential to spread far and wide. American investors, for example, own nearly 25 percent of outstanding Turkish bonds and more than half of publicly traded Turkish stocks, according to the I.I.F.
Mr. Lee these days is far from the only one warning about the Turkish economy and financial system. The thing that really worries him and other bearish investors is that Turkey could be a signal for what lies ahead for assets and economies that were inflated by cheap debt.
“I think that most people have not thought through the broader implications of what is happening in Turkey,” said Justin Leverenz, who manages the Oppenheimer Developing Markets Fund, the largest of its kind in the United States. “I could see global growth being much weaker than people think.” Bracing for stressful times ahead, Mr. Leverenz recently reduced the fund’s exposure to Turkey to nearly zero.
If Mr. Lee’s 2011 call now looks prescient, it hasn’t won him much new business.
Lately, just as Turkey began its crackup, a number of his clients have left him.