The Controversial Mall Casts a Shadow on Turkish Investors

For a country that was recently praising its stability to achieve admittance into the European Union, the events of the Turkish rebellion took many internationally by surprise.

Effects on the United States

For a long time, Turkey has been viewed as the United States closest ally in the Arab world. The United States government faces pressure to encourage Turkish authorities not to attack protesters, an action it is reluctant to take as Turkish government is useful for foreign policy.

Economically, trade between the two countries has grown 75 percent over the past four years to twenty billion. Goods exported to Turkey account for roughly one percent of total United States exports, mostly in the form of basic materials and aircraft.

If the Turkish uprising turns into as widespread a protest as Egypt, trade effects are likely to be similar as explained here. United States exports to Egypt have fallen by almost 20 percent since the start of their protests and are just beginning to recover.

The Turkish Market

During the weekend of May 31st to June 3rd, protests grew exponentially. The iShares MSCI Turkey Index Fund (NYSE:TUR) lost 8 percent over the weekend. To put the magnitude of this loss in perspective, the biggest loss the Dow Jones faced in the 2008 recession was 7.87 percent, which came after an 11 percent gain that week and experienced a 4.68 percent recovery the next day.

One of the biggest negative impacts the uprising will have on the Turkish economy is uncertainty over future investment. Foreign Direct Investment for 2010 in Egypt totaled 6.8 billion dollars. This fell to almost zero on start of the uprising with 100 million of investments actually leaving the country during the first quarter of 2011.

What Now

Only time will tell the degree to which uncertainty in Turkey will continue, but analysts cite several reasons why the country will not experience a governmental overthrow. One thing that can be known is that investors have been signaled that their investments are not as safe as previously thought.

Any remaining hope to join the European Union disintegrated. The global recession and needs to crutch Greece and other countries eliminated almost any chance for Turkey to join the EU in the near future.

The NYSE traded Turkish ETF is rallying, up almost four percent this morning.