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Turkey ETF Crashes After Istanbul Protests

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Turkey has turned into a favorite destination among many emerging market investors, thanks to its large (young) population, relatively diversified economy, and its prime location which ensures the country remains a crossroads between Europe and the Middle East.

However, the growth trajectory hasn’t been straight up by any means, as the country has faced some political issues in the past, along with concerns over many of its volatile and unstable neighbors. We were reminded of this rockiness once again this past week as protests against the government in the country’s largest city have spiraled out of control.

What Happened in Istanbul?

Protestors converged on Gezi Park in Istanbul’s Taksim Square to protest the planned development of the space. Instead of a public park, a new private development (although the Prime Minister has now declared that a mosque will be built on the site) would be in its place, shutting down one of the few remaining parks in the European side of the city.

The protests were small at first, but they quickly expanded and included thousands before a police crackdown took place. However, the police action may have only angered others—especially after reports hit social media sites—and led to a wider-scale protest that not only hit Istanbul, but the country’s capital of Ankara as well (read Is the Turkey ETF in Trouble?).

Beyond that though, many were also uneasy about some of the other changes put into place by the ruling Islamist Justice and Development Party, which some see as pushing the country down a more conservative road. There were more restrictions put on press freedoms, alcohol purchases, as well as media consumption, so it is possible that the Gezi Park situation was just the last straw after these new measures were put into effect.

ETF Impact

As you might imagine, the recent bout of violence and political uncertainty, have dulled the appeal of investing in Turkey. This has severely hurt the main fund way to target the nation, the iShares MSCI Turkey Index Fund (TUR - Free Report) .

The ETF is now down over 16% in the last five trading sessions, including a 9.3% loss in early Monday trading alone. Volume levels were also elevated, as the ETF saw nearly 4.5 times as many shares move hands in the first two hours of trading as it usually does in a single session (see Turkey ETF in Focus on Rate Cut and Credit Upgrade).

Clearly, investors aren’t taking any chances with this protest, selling off the Turkey ETF in droves. The protest also highlights the fact that Turkey is still a volatile emerging market, and that heightened risks in these types of nations can have an enormous impact on foreign investor confidence, and stock prices in general.  

Bottom Line

It is hard to say what the near term outlook is for Turkey at this time. Clearly, the country is facing some severe political issues, and given the protests’ escalation so far, one has to believe that the turmoil could continue.

This could be especially true if the hard-line approach remains in place for the protests, and if the more conservative tilt for governing continues. There is some danger of Turkey losing its reputation as a relatively secular Islamic country if the current trend holds, and this loss of status could be bad for investments in the country as well (also read Avoid These 3 Eurozone ETFs This Summer).  

Still, over the long term, Turkey has a very bright future, assuming of course that the current situation doesn’t bubble over into a full scale confrontation or rebellion. So, as long as events do not deteriorate too much further, it could be argued that TUR presents a compelling value at this time.

However, it is worth pointing out that TUR has already had an amazing run over the past year, with gains of over 40% being seen in the time frame. Given this run, along with broad underperformance of many emerging markets in the same period, this was probably long overdue for TUR so investors might want to let the country cool off before thinking about getting back in on this volatile emerging market growth story.

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