Turkish stocks and country-specific exchange traded fund plunged Tuesday on escalating tensions between Turkey and Russia after the downing of a Russian jet added to a long list of concerns.
The iShares MSCI Turkey ETF (NYSEArca: TUR) dropped 4.5% Tuesday, falling below its short-term 50-day simple moving average and reversing the gains from the recent elections.
Meanwhile, the Turkish Borsa Instanbul 100 Index fell 4.4% to 76,243.
Turkey’s equities market fell off on heightened uncertainty after the Turkish military downed a Russian jet that reportedly violated Turkey’s airspace, according to Bloomberg.
The Russian jet was downed near the boarder with northwestern Syria. Turkey, which has backed the rebels fighting against Bashar Al Assad’s government near the northwestern Syria border, has previously warned Russia about incursions into Turkish airspace.
“Turkey is a NATO member putting itself at odds right now with another military power,” Roxana Hulea, a foreign-exchange strategist at Societe Generale SA, told Bloomberg. “Such security-related concerns certainly prevail over any other surmountable risk factors.”
Even before the escalating tensions with Russia, Turkey has been tackling a number of economic issues. The country has been suffering an economic downturn due to greater political instability, a struggle against threats from the Islamic State and a renewed war with Kurdish militants in its southeast, reports Michelle Mark for the International Business Times.
Currently, Turkey is experiencing rising inflation, slowing growth, increased fiscal expenditures, high unemployment and a dip in export competitiveness. The economy is expected to only expand 3% in 2015 and 2016.
Now, Russia, Turkey’s second largest trade partner, could execute a number of sanctions in response to the downed jet. For instance, a Russian lawmaker has suggested a ban on flights to Turkey and one of Russia’s biggest tour operators announced suspended sales packages to turkey.
Meanwhile, Turkey is reshuffling its government to potentially implement greater economic reforms. Former Finance Minister Mehmet Simsek was appointed deputy prime minister and will steer the economic committee.
“The cabinet announcement was pretty much market-neutral and a continuation of the status quo,” Kerem Baykal, a fund manager at AK Portfoy, told Bloomberg. “Although Babacan is out, the inclusion of Simsek is positive. We now have to see how reform friendly the administration is going to be and how it’s going to address Turkey’s vulnerabilities.”
iShares MSCI Turkey ETF
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Max Chen contributed to this article.