Turkish stocks and country-specific exchange traded fund continued its downward spiral Thursday after President Recep Tayyip Erdogan’s announced a state of emergency and concerns over capital flight in the face of further credit downgrades.
The iShares MSCI Turkey ETF (NYSEArca: TUR) fell 2.9% Thursday after plunging 13.5% over the past week.
Turkish markets continued to fall Thursday after S&P Global Ratings cut the country’s sovereign debt rating to BB/B on concerns over an increase in political risk after the failed putsch, reports Bloomberg.
Moody’s Investors Service also put a number of companies on review for a downgrade and is reviewing the sovereign for a possible downgrade.
“S&P’s action may increase market expectations of a downgrade to sub-investment grade by Moody’s,” JPMorgan said, Reuters reports.
Debt downgrades weigh on economies as the lower credit ratings are seen as an increase in risk exposure to the country’s debt, potentially causing capital flight out of the riskier market and pushing up rates on the debt securities.
“A risk of capital flight remains unless the measures adopted during the state of emergency are revealed clearly,” Ozlem Derici, an economist at Deniz Invest in Istanbul, wrote in a research note. “Otherwise, we may see rate cuts from Moody’s and Fitch as well.”[related_stories]
Erdogan has also declared a three-month state of emergency to in response to the failed coup. The administration is pursuing those accused of being behind the coup and has arrested thousands of army officers, judges, teachers and prosecutors.
Meanwhile, the Turkish lira has weakened against the dollar on the uncertainty.
“The political moves point in the direction that things are likely to get worse rather than better from here on. So the lira is more likely to fall than to rise,” William Jackson at Capital Economics told Reuters. “This is about Turkish politics – I don’t think there are other countries where politicians will take their cue from developments in Turkey.”
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iShares MSCI Turkey ETF