Many emerging markets held up quite well on the initial news of the Fed QE taper, with several rising on the day despite worries over reduced demand. However, the first full day of trading following the report that the Fed would be curtailing bond purchases by $10 billion wasn’t as kind to these markets, sending many sharply lower.
Broad funds like (EEM - ETF report) and (VWO - ETF report) were both down more than 1.6% on the session, while some country specific funds struggled even more. While several BRIC markets—especially India—were hard hit, one of the biggest losers on the day was clearly the iShares MSCI Turkey Index Fund (TUR - ETF report) .
TUR was down about 4.4% on the day, as emerging market tapering concerns weighed heavily on this high beta—and financial heavy—market. And though taper worries played a big role in TUR’s decline, political issues also played a huge part in the Turkey ETF drop in Thursday trading (read Should You Stuff the Turkey ETF into Your Portfolio?).
Political Woes in Focus
Some believe a new political crisis is brewing in Turkey, following up the issues that hit the country earlier in the year. This time, a clash appears to be building between the Prime Minister and an Islamist movement, with dozens being arrested.
This is somewhat of a surprise as the both the Prime Minister and the Islamist movement—the Hizmet Movement—were on the same side. However, they have been opposing each other lately, especially after a recent decision from the Prime Minister which impacted a key source of Hizmet’s revenue and recruitment, according to CNN.
Given this rift, as well as upcoming elections in 2014, many are becoming a little more bearish on Turkey. And when you add in the taper and what this means for emerging markets, it becomes pretty clear why Turkey sold off so heavily in Thursday trading (also see 3 Currency ETFs Crushed in Emerging Market Rout).
Turkey ETF in Focus
It also doesn’t help that TUR has such a heavy financial component, with the sector comprising more than 45% of the fund. This, combined with a beta vs. the S&P 500 of 2.15, helps to explain why Turkey has struggled so much during the last few months.
After all, financials have been among the most impacted by taper concerns in the U.S., and stand to lose the most from currency weakness as well. Plus, with the high beta nature of the Turkish market, the country tends to lead on the way up, and on the way down too.
And, thanks to the latest move lower, TUR is once again within striking distance of its 52 week low. The ETF has lost about 20% in the past three months, and about a quarter of its value in the YTD time frame, suggesting that the momentum isn’t looking very good for this fund possessing a Zacks ETF Rank #3 (Hold).
Turkey has experienced a very rocky 2013 thanks to a struggling currency, broad emerging market woes, and vast political risks. While some might have hoped that this would end with the year, a new crop of issues—and a fresh political rift—could suggest that more worries are ahead for TUR (see all the Broad Emerging Market ETFs here).
So, investors might want to hold off on this high beta ETF until there is some political certainty following the elections in 2014. Until then though, it could be a very rocky road for the Turkish equity market, especially if broad emerging market concerns press down on volatile funds like TUR.
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