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Turkey ETF Plunges in Response to Erdogan’s Iron Grip on Economy

This article was originally published on ETFTrends.com.

The sell-off in Turkish markets and country-specific ETF continued Tuesday as the lira currency depreciated on rising concerns over President Recep Tayyip Erdogan's executive powers.

The iShares MSCI Turkey ETF (TUR) declined 3.1% Tuesday after falling off 3.3% Monday, which have more or less erased the gains accumulated since mid-June.

Dragging on the Turkish markets, the lira currency weakened 4% against the U.S. dollar late Monday after Erdogan appointed his son-in-law as finance minister and placed measures that could diminish the independence of the central bank, the Wall street Journal reports.

“There’s a real risk that this spirals into a full-blown currency crisis,” Paul McNamara, a portfolio manager at GAM Holding, told the WSJ. “It’s got so many red flags that we’ve associated with economic crises…in the past.”

The lira has already lost a fifth of its value against the greenback this year as investors dumped the currency ahead of Erdogan's June re-election on concerns the president would erode the central bank's powers and push for looser monetary and fiscal policies. Erdogan has already stated that high interest rates are "the mother and father of all evils," fueling fears that his desire for lower rates could further deteriorate the currency and elevate inflationary pressures.

Turkey's Concerns Mount

Concerns mounted Monday after the government said the president would appoint the central bank governor, deputies and monetary policy committee members for four-year mandates.

“It will be very difficult to convince the market that this is not a one-man show,” Christian Maggio, head of emerging markets strategy at TD Securities, told the WSJ.

The sudden changes come in a time when growth in Turkey has shown signs of slowing. Furthermore, some investors are already diverting money away from the emerging markets to play higher rates in the U.S. and hedge against rising trade war concerns.

“Turkey has some of the weakest economic fundamentals of any emerging market,” Lee Hardman, a currency analyst at MUFG, told the WSJ. “That increases the vulnerabilities to a crisis.”

For more information on the Turkish markets, visit our Turkey category.