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Turkey's Markets and Economy to Take Hit From Failed Coup
| Wall Street Journal | - |
The
failed coup in Turkey is likely to hit the country's markets and
economy but the impact beyond its borders would be limited, investors
and analysts say.
Turkey’s Markets and Economy to Take Hit From Failed Coup
Political instability likely to take toll on an already weakened lira
ENLARGE
The failed coup in Turkey is expected to hit the country’s markets, currency and economy.
Photo:
Emrah Gurel/Associated Press
The Turkish lira plunged late Friday against the dollar, and other emerging markets also came under pressure, after news that a military coup attempt was under way. Turkey’s government reasserted control over the weekend, arresting thousands of members of the military.
Analysts foresee further weakness for the Turkish currency due to the political instability that is likely to engulf the country. This would also threaten to undo a recent upswing in the economy, analysts say.
Other emerging markets were hit, with currencies from the Mexican peso to the South African rand falling against the dollar late on Friday as news about the coup attempt started to pour in.
But the impact on the wider emerging world is expected to be limited as analysts regard the Turkish turmoil as an isolated event and the government appears to have regained control quickly. Wall Street, where the Dow Jones Industrial Average notched another record close Friday, is also unlikely to suffer major consequences from the Turkish unrest.
“The impact looks fairly localized,” said Peter Marber, head of emerging markets at Boston-based fund Loomis Sayles & Co. He expects the Turkish markets to be under pressure on Monday.
Richard Segal, emerging-market analyst at Manulife Asset Management, said that as with the British vote to exit the European Union last month, the events in Turkey could have a slight impact on sentiment across the emerging world.
“But to the extent that this is a local development and it was over within 12 hours, it shouldn’t be long-lasting,” Mr. Segal said.
Markets across the Persian Gulf, which are open on Sunday, closed mostly higher. Saudi Arabia’s stock market, the region’s biggest, closed up 0.3%, while Dubai Financial Market’s main index rose 0.5%. Qatar’s stock market finished 0.1% lower.
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While Turkey isn’t a big oil producer, some of the world’s busiest shipping routes for crude pass through its waters, with nearly 3 million barrels flowing through daily, according to U.S. government data. After initial disruptions, the biggest chokepoint, the Bosporus strait, was reopened on Saturday.
For Turkey itself, however, the failed coup promises to spoil a recent upturn in the economy and markets, analysts said.
Economic data have been pointing to accelerating manufacturing activity and improving consumer confidence in recent months. Turkish debt has been among the best performers in emerging markets in recent months, with the 10-year bond yield falling to 8.85% from 11% earlier this year. The iShares MSCI Turkey ETF, which tracks an index of Turkish securities and trades in the U.S., has risen 14% so far this year.
The ETF fell 2.5% at the end of the U.S. trading day on Friday. The U.S. dollar jumped nearly 5% against the Turkish lira to about 3.01, marking the lira’s weakest level since January.
“It was the tenuous political calm amid a favorable global environment which provided the recent boost to Turkish assets,” analysts at UniCredit wrote in a report Sunday. “With the stability now gone, the remaining checks and balances under threat and confidence shaken, markets will remain materially weaker for the foreseeable future.”
On Sunday, Turkey’s central bank said it would take all precautions to protect financial stability in a move to calm investors’ fears.
“The central bank will provide necessary liquidity to banks limitlessly,” the central bank said on its website.
Viktor Szabo, a portfolio manager at Aberdeen Asset Management, said the turmoil would hit the country’s efforts to attract foreign investment and aggravate the pressure on its external balances.
“We might see more stable politics, but at the same time the confrontational tone will continue to take its toll,” Mr. Szabo said.
While the Turkish government was able to quickly thwart the coup attempt, the ensuing violence killed hundreds and deepened concerns about the direction of a country divided by the leader’s rule.
A wave of mass arrests—more than 6,000 people were detained for alleged involvement in the coup, officials said Sunday—may result in more power being concentrated in President Recep Tayyip Erdogan’s hands, analysts said.
Michael Harris, Turkey strategist at Renaissance Capital, said in a note that he expects Mr. Erdogan to call a snap election, aiming to get a constitutional supermajority in parliament.
“Markets might like a decisive election, but in that case the risks of polarization…would rise,” Mr. Harris said.
—Nikhil Lohade and Yeliz Candemir contributed to this article.
Write to Georgi Kantchev at georgi.kantchev@wsj.com and Christopher Whittall at christopher.whittall@wsj.com 
