Turkey ETF Rebounds on Political Relief
Turkey’s country-specific exchange traded fund (ETF) and the Turkish lira strengthened Tuesday after newly elected Prime Minister kept crowd favorite Mehmet Simsek in the administration’s new cabinet.
The iShares MSCI Turkey ETF (TUR) surged 5.8% Tuesday. TUR, though, has plunged 15.0% over the past month in response to the uncertain political climate.
Related: Lone Turkey ETF on a Wild Ride After Political Volatility
Moreover, Turkish equities were bolstered by an appreciating lira currency, which firmed to 2.9465 against the U.S. dollar.
Turkish markets rallied after Prime Minister Binali Yildirim stepped up and announced a cabinet that signaled policy continuity, with top members of the economic management team including Deputy Prime Minister Mehmet Simsek, whom was favored by foreign investors as a reformer, Reuters reports.
Investors believe Simsek will maintain fiscal discipline and act as a buffer to Erodgan’s push against orthodox monetary policy.
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“There will still be some doubts, but this is a relief insofar as the fear the central bank would start cutting rates aggressively before core inflation has moderated,” Henrik Gullberg, a senior emerging-market strategist at Nomura International Plc, told Bloomberg. “The political and policy risk premia built in over the past few weeks since Davutoglu’s dismissal is now at least partly reversed.”
Looking ahead, Turkey still faces growing risk from investment outflows as the U.S. Federal Reserve normalizes interest rates.
Related: More Tumult for Lone Turkey ETF
“Emerging markets are going to be quite volatile in the coming month as we approach the June Fed meeting,” Simon Quijano-Evans, chief emerging-market strategist at Commerzbank, told Bloomberg.
Traders are projecting a one-in-three chance of a rate increase in June.
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iShares MSCI Turkey ETF
