What Next for Turkey?


The protests in Turkey appear to have entered a new phase Tuesday. Scenes from the capital were broadcast on tv in the U.S. and raised memories of the protests in Egypt back in 2011.

When Egypt's tyrannical regime was forced out in a peaceful coup, it the stock market went through a major, pro-longed sell-off. The Market Vectors Egypt Index ETF (NASDAQ:EGPT), which tracks Egyptian stocks, lost about half of its value over the course of a year.

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Eerily Similar

The moves in the Egypt ETF during its protests look eerily similar to recent moves in the iShares MSCI Turkey Index Fund (NYSE:TUR). As the protests continue to follow patterns similar to those from Egypt, it could be that the Egyptian shares are a template for how to trade Turkish stocks here.

Egyptian shares shed 22.1 percent in the first two weeks following the flare-up in the crisis; Turkish shares lost about 20 percent. Egyptian shares went on to trade with massive volatility over the next 7 weeks as the crisis waned and flared again, as many due, but lost an additional 5 percent overall. Turkish shares are down 2.7 percent after the first two weeks.

Price Target?

Egyptian shares lost about half of their value in the course of the year following the revolution as the economy stalled. The Egypt ETF declined from a high of $20.63 at the onset of the protests to a low of $9.24 just near the end of the year. From peak to trough, shares declined about 55 percent.

If Egypt is an indicator for Turkey, and as of now the situation looks similar, then stocks would sill have significant downside. A 55 percent sell-off would imply that the Turkey ETF could decline all the way to $34.83 per share. This would be lower than the low made in December last year and would approach levels not seen since the financial crisis.

Not Just About the Markets

Let's not forget that in situations such as these, the financial and economic cost is only part of the equation. Hopefully, the flare-up in the protests is short lived and the death toll and injuries remain minimal. However, the market has been moving on the news from Istanbul and investors should be aware exactly what the impact could bring home.

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