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Political Instability Puts Turkey ETF in Focus

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Political uncertainty is not new for Turkey, but last week it crossed all barriers after a military coup was initiated on July 15 to oust Turkish President Recep Tayyip Erdogan. Though it finally turned out to be a failed attempt with the help of supporters of Erdogan’s government, the aftershock of it is likely to be in place in the near term (read: Can Turkey ETF Survive Political Woes?).

Erdogan – the “coup survivor” and the “Islamist-rooted politician” – pledged for a strict retaliation. Erdogan held followers of U.S.-based Islamic preacher Fethullah Gulen responsible for this attack and declared that the U.S. should surrender Gulen to its fellow NATO member. Both Gullen and the U.S. turned down all these accusations and the latter also stressed that the allegations are baseless and damaging to the bilateral relations of the U.S. and Turkey.

The failed plot, which took about 200 lives, was the result of a deteriorating political backdrop triggered by a set of factors. Of these, “Erdogan’s efforts to invest the presidency with increased powers while combating an upsurge in terrorist attacks blamed on Islamists and Kurdish separatists” is the most crucial.

Market Impact

Needless to say, such geo-political threats are detrimental to the investing world and global investors rushed to sell-offs as expected. Turkish currency lira plunged to the eight-year low and Turkey’s stock futures slipped when the military announced that they have taken control of the country.

However, after the seizure attempt dissipated, the Turkish lira added some gains on Monday. The pure-play Turkey ETF, TUR, lost over 2.5% on July 15, and retreated as much as 4.95% after hours in response to the sudden political uprising.

Whatever the case be, investors may turn cautious over Turkey investing as it is yet to be seen how aftereffects of the event shape up. This is especially true as Erdogan seeks to eradicate opponents, putting thousands of people behind the bars.

Given this rift, the lone Turkey iShares MSCI Turkey ETF (TUR - Free Report) will be in focus in the coming days (see all European Equity ETFs here).

Turkey ETF in Focus

TUR provides exposure to Turkish equities having an asset base of $363.8 million. The fund trades in good volumes of a little more than 300,000 shares a day, while charging 63 basis points as fees.

The fund provides concentrated exposure to a basket of 70 stocks. The top three holdings – Akbank A, Turkiye Garanti Bankasi A and Bim Birlesik Magazalar A – together occupy less than 30% of total fund assets.
 
Sector-wise, Financials dominates the product having a little less than half of the total fund exposure. Apart from this, Consumer Staples (13.2%) and Industrials (12.1%) have double-digit exposure.

TUR has a Zacks ETF Rank #3 (Hold) with a High risk outlook. But we believe that the ETF might have a bumpy road over the medium term, unless some of the ongoing problems within the country are resolved (read: 3 Diversified Small-Cap ETFs for Risk Aversion).

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