The iShares MSCI Turkey ETF (NYSEArca: TUR) is down nearly 29% over the past six months, making it one of the worst-performing single-country emerging markets exchange traded funds over that span. Unfortunately, the potential exists for more headwinds for the lone Turkey ETF.
In July, Turkish stocks and TUR tumbled following a failed coup. Turkish markets plummeted on concerns of the implications of the ensuing political turbulence after a failed coup d’etat attempt from the military branch.
In August, Turkey’s central bank lowered interest rates by 25 basis points to 8.75% and said it stands ready to provide liquidity to the country’s banks, if needed, an important factor considering TUR’s weight to financial services stocks is almost 44%, or more than triple the ETF’s second-largest sector allocation.
Following the July coup attempt, 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.
Another ratings agency, Fitch Ratings, could soon downgrade Turkey’s sovereign credit rating.
“The Turkish government has imposed emergency rules that enable it to bypass parliament in enacting new laws and to limit or suspend rights and freedoms when deemed necessary. It was imposed after an attempted coup in July and then extended for a second three-month period in October,” reports Reuters.
Fitch’s Ed Parker told Reuters Turkey is at risk of downgrade when the ratings agency reviews the country’s rating later this month.
The administration is pursuing those accused of being behind the coup and has arrested thousands of army officers, judges, teachers and prosecutors.
Some market participants believe political risk in Turkey exceeds that of other emerging markets, meaning it is too soon for investors to consider supposed bargains in Turkish stocks.
“The coup attempt is going to compound a whole load of political risks in Turkey and we see that weighing more and more on the growth outlook and the public finances,” Fitch’s Parker told Reuters.
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