Turkey’s weekend election results added to further political uncertainty as the ruling AK Party failed to garner a parliament majority, sending Turkish equities and country-specific exchange traded fund in free fall.
The iShares MSCI Turkey ETF (NYSEArca: TUR) plunged 6.8% Monday. TUR has declined 14.5% year-to-date.
Turkish President Tayyip Erdogan hoped for a crushing victory for his AKP to provide the necessary backing to change the constitution and secure a more U.S.-style presidency, Reuters reports.
However, the pro-Kurdish People’s Deomcratic Party (HDP) rained on the AKP’s parade, taking over 12% of the vote – the Kurdish people inhabit the southeast region of Turkey, bordering Syria and Iraq.
William Jackson, senior emerging markets economist at research firm Capital Economics, argued that the political uncertainty brought by the weekend vote added to an “already ugly picture” in Turkey, CNBC reports.
“The loss by Turkey’s AK Party of its parliamentary majority for the first time since 2002 makes President Erdogan’s desire to change the constitution to strengthen the presidency a pipe dream and should in time help to dampen concerns about an increasingly authoritarian streak to policymaking and a more general diminution of checks and balances on government,” Jackson said. “But in the near term, the coming weeks are likely to be marked by uncertainty over coalition negotiations. This will remain the focus of markets, which have already delivered a resoundingly negative response.”
Erdogan and Prime Minister Ahmet Davutoglu contend that the country could return to short-lived coalition governments, economic instability and coups by a military if the AKP lost the majority.
Adding to the market sell-off, the weakening Turkish lira currency has sent foreign investors to the doors. The Turkish lira touched a record low of 2.8094 to the dollar Monday.
However, over the medium term, bargain investors may find a cheap market once the short-term volatility clears up if the elections result in a return to economic reforms, greater independence for the central bank and fewer domestic divisions, writes Richard Barley for the Wall Street Journal.
iShares MSCI Turkey ETF
For more information on Turkey, visit our Turkey category.