By Carl Delfeld of ETF Passport & Chartwell ETF
Turkish equity markets, which have been among the world’s top performers over the last year, hit some major bumps this week with the arrests over a recent coup plot and ongoing trouble in neighbor and longtime rival Greece spooked investors. The news sent the iShares MSCI Turkey ETF (TUR) sharply down and at $48.7, it has fallen 20% from its 2010 high of $58.5 2010 on February 1st.
This is reminder that emerging markets are not for the faint of heart and that politics in these markets matter a great deal.But the flip side is that some of the best opportunities come when “blood is running in the streets” as Rothschild famously pointed out and this is why I have personally invested in the Turkish ETF (TUR) and why you might want to follow with a small bet of your own.
Turkey is not a fringe economy but the 16th largest GDP in the world with a strong banking and industrial sector. It is extraordinarily important in a strategic and security sense and is a powerhouse in the region. TUR was, even before its 20% haircut, one of the cheapest markets in the world and is now even more so.
The current political chaos is worrisome but not unprecedented. According to various sources, including the BBC and the Canadian Press, prosecutors interrogated quite a few military officials about alleged plans to destabilize the country by blowing up mosques and provoking Greece into shooting down a Turkish plane over the Aegean Sea in order to trigger a coup and topple the government. This is James Bond stuff writ large.
Ironically, just this week, the S&P upgraded Turkey's long-term foreign currency rating to BB from BB- and issued a positive outlook for the country, which suggests the likelihood of additional rating increases in the next year or two.
Coups are hardly unusual in the country; there have been four since 1960. And relations between the AK Party of Recep Tayyip Erdogan and the more secular military leadership are always tense.
Markets tend to prefer the AK Party, whose stewardship over the economy recently won the country's credit rating an upgrade from Standard & Poor's.
Risk Factor: very high, suggest a small position & 5% trailing stop loss.