Turkey: When a Coup Doesn’t Destroy a Market

Print Email

When told of a failed coup and a round of thousands of arrests of military, government and civilian people, most investors might just assume that the local stock market would be crushed. Reports of close to 300 deaths have also been circulating and arrests are still being made. Markets hate uncertainty, and the potential ouster of an elected government has to rank up at the highest points of uncertainty. Still, the failed coup in Turkey somehow is being at least somewhat discounted, compared with other coups and revolutions.

iShares MSCI Turkey (NYSEMKT: TUR) was last seen down 7.8% at $38.35, versus a 52-week range of $33.15 to $46.42. It had $363 million in assets as of July 15, 2016. That is based on 8.55 million shares, and its average daily volume is under 400,000 shares.

The Turkish Investment Fund Inc. (NYSE: TKF) was last seen down 7.8% at $8.22, versus a 52-week range of $7.05 to $9.74. This closed-end mutual fund dates all the way back to 1988 and is advised and run by Morgan Stanley. The fund has an average daily share trading volume that is far smaller, close to 17,500 shares.

Turkcell Iletisim Hizmetleri A.S. (NYSE: TKC), the Turkish wireless and telecom player operating in Turkey and nearby nations, was last seen down 5.3% at $9.06. Turkcell has a 52-week range of $7.71 to $11.71, and its average daily trading volume is close to 300,000 shares on the New York Stock Exchange.

The Turkish lira was last seen down less than 2%, but that had been far worse over the weekend and earlier on Monday. Other coups and revolutions have been much more harsh in the aftermath. Perhaps this one is different because the coup failed, and markets often treat an unpopular situation better than an unknown situation.

VanEck Vectors Egypt ETF (NYSEMKT: EGPT) cratered during the revolution in Egypt in 2011. Many of the underlying companies were limit down after reopening, and the exchange traded fund acted like a price-discovery mechanism because new units were unable to be created and the markets were closed on a local level.

I'm interested in the Newsletter
 

24/7 Wall St. wanted to see what else was being said, for instance by the ratings agencies on how they see Turkey now. Fitch Ratings said:

The attempted coup in Turkey (BBB-/Stable) and the authorities’ reaction highlight political risks to the country’s sovereign credit profile, Fitch Ratings says. Whether this translates into sovereign ratings pressure will depend on the extent to which the government’s reaction deepens political divisions and weakens institutional independence. This could undermine policy coherence and heighten the risks that external financing stresses materialize. … Our next scheduled sovereign rating review is due on 19 August.