The often volatile iShares MSCI Turkey ETF (NYSEArca: TUR) is dealing with some geopolitical headlines with aplomb. On Sunday, Turkish voters voted to disband the country’s parliamentary system and install a strong presidential form of government.
Many political analysts and market observers are concerned the decision will give President Recep Tayyip Erdogan more power and turn into a threat to Turkish democracy. Last year, 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. The country is still under a state of emergency related to that coup.
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. Additionally, there are lingering concerns the country could be tagged with another credit downgrade this year. Earlier this year, Moody’s Investors Service lowered its outlook on Turkish debt to negative. Still, TUR has been steady in the wake of Sunday’s referendum.
“The political view on Turkey is that the country has basically moved one step closer to dictatorship. In some respects, Erdogan is an elected autocrat, cracking down on the opposition and some members of the media,” reports Kenneth Rapoza for Forbes. “Opposition leaders believe Erdogan will use that power to ride roughshod of Turkey’s push towards a European-friendly democracy by issuing executive orders that harm that relationship with the E.U.”
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 Erdogan Administration is pursuing those accused of being behind the coup and has arrested thousands of army officers, judges, teachers and prosecutors.
Erdogan’s conservative AKP party “has promised a series of reforms to make Turkey’s $857 billion economy grow faster and reduce a current-account deficit that leaves Turkey vulnerable to the swings of foreign-currency inflows,” reports Forbes.
For more stories on the lone Turkey ETF, visit our Turkey category.