The densely populated country on the Bosporus has long enjoyed international confidence as a potential EU candidate, NATO partner, trade partner and hub for the Middle East. Investors regarded Turkey as a high-growth economy.

This development is currently undergoing a drastic turnaround. Due to current uncertainties, investors from the US dollar zone have lost half of their share values, US bond creditors more than a quarter due to the currency decline.

MVIS Turkey Index

Source: MV Index Solutions and Bloomberg. All values are rebased to 1000. Data as of 31 July 2018.

The current president’s political capital came from a long upswing in the Turkish economy. He and his government have provided strong assistance with major infrastructure investments such as the Bosporus tunnel1 and the mega airport 2. Such an expansive policy requires access to international capital markets and an integration into the global economy. A stable currency is required as a basis.

The country's leader is putting its own currency at risk. The political influence on the central bank is obvious3. In addition, the Turkish President has appointed his son-in-law as Minister of Finance 4. The house of cards of the debt-financed upswing is collapsing. In the domestic economy, inflation continues to rise due to artificially low refinancing rates 5, local banks already need support 6.

The economic senselessness of politics is becoming increasingly apparent. Political leaders can convince voters or other politicians - but not the market. Propaganda is useless against the US Dollar as it is just a currency.

The announcement of new allies outside the dollar zone 6 and the bashing against international institutions such as the IMF will continue the downward spiral. Added to this is the pressure of the political conflict with the USA 7.

About the Author:

Jan Altmann is consultant and contributor to the investment and Fintech industry. He has been instrumental in setting up the ETF business in Europe and worked for many big names as well as small boutiques since then. He provides advice and content about emerging topics like ETF-Investing, digitisation, distribution and industry standards.

The article above is an opinion of the author and does not necessarily reflect the opinion of
MV Index Solutions or its affiliates.

1Eurasia tunnel, 2016

2Mega-Airport 2018

3Erdogan's influence on the central bank

4Erdogan names son in law finance minister

5Turkey central bank begins to bolster Turkish banks

6Turkey looks to ‘new alliances’ for way out of crisis

7Trump Puts Turkey Alliance on the Line With Standoff Over Pastor