Turkey may be in the throes of political instability, possibly threatening any growth within the economy and affecting the country’s exchange traded fund (ETF) and closed-end fund (CEF).

Selcuk Gokoluk for The Guardian reports that the top court may close the ruling AK Party because of Islamic activities. By banning the ruling party, which won a sweeping re-election in 2007 and has a majority of the seats, is unheard of in Turkey and will leave the country in uncharted political territory.

The most vulnerable areas are in the fixed-income and foreign exchange markets. The lira remains overvalued given the account deficit and the increased political risk will increase funding costs of the deficit. The country’s deficit is expect to hit $49 billion this year because of higher oil prices, up from $38 billion last year.

Polya Lesova for MarketWatch reports today that the Turkish lira strengthened against the U.S. dollar once data emerged that the country’s economy grew even faster than expected: 6.6% year-over-year. The benchmark IMKB-100 index still fell, however, and it’s down 37% year-to-date.

Despite the strong numbers, analysts say the country still faces a slowdown for the rest of the year.

• iShares MSCI Turkey Investable Market Index (TUR), down 8.3% since April 1 inception
• Turkish Investment Fund (TKF), down 29.1% year-to-date

Tags: KOL, Turkey