The recent attempted military coup in Turkey was shocking and unpredictable. It demonstrated to the world that developed governance in Turkey was still a goal and not a reality. For traders, however, it posed a question: how do I short Turkish assets? Certainly, the recent coup attempt, the ongoing conflicts in Syria and Turkey’s eastern hinterland (where it is fighting an on/off war with the Kurds), mean that Turkey, once a possible candidate for EU membership, is now battling for its own political stability.
Turkey had been enjoying considerable economic progress leading up to this month’s events: it is the 17th largest economy in the world, and per capita income there has tripled in the last decade. The EU is Turkey’s biggest trading partner, accounting for over 40% of its trade. But, the economy has been slowing down since 2011, partly because the country is becoming more developed, but partly because of worries about political risks. Turkey has been at loggerheads with many neighbours, including Syria and Russia, and its large Kurdish minority. Investors do not see its EU accession as quite the certainty they used to.
For most traders, the Turkish stock market index and the currency, the lira, are probably the most likely tools to trade the news in Turkey. The BIST 100 is frequently cited as the main benchmark for listed shares in Turkey on the Borsa Istanbul. A number of brokers quote prices on the BST 30, which will represent the biggest and most liquid stocks in Turkey. The index has fallen off a cliff since the coup attempt, and at time of writing, was still heading south as investors offload Turkish assets. Selling volume has been high.
Large cap stocks in the index include KOC, Sabanci, Akbank and Turkcell. But selling even among these has been violent in the last week – Koza Altin is down 22% for the week since the coup, while Pegasus was down nearly 20%. Trading Turkish physical shares will be difficult and expensive, but trading the index with a CFD or spread bet will at least allow traders to benefit on the short side.
Going in to last Friday’s coup, the lira (TRY) was trading at around the 2.90 against the USD. It then predictably fell off a cliff, and has had an extremely volatile week, which has seen it touch 3.10. There is definitely more buying activity in the forex market than there is in stocks, as some investors still seek yield in emerging markets, even in this volatile market.
Short term, Turkey represents quite a risky market to trade.
It will be very news driven, and traders will have to familiarise themselves with the political dynamics occurring on a week by week basis. Turkish politicians will be very keen to try to stabilise the situation, and will seek to paint a rosy picture for investors.
It is not beyond the boundaries of possibility that the government will seek to impose more stringent controls on capital and even the currency as part of its emergency stabilisation measures. Turkish governments have intervened drastically in markets before: the TRY had to be redenominated in 2005, and was ranked as the world’s least valuable currency by the Guinness Book of Records in 1995-96, and 1999-2004. While the economy has been very successful in the last decade, the governance that underpins that economy still looks fragile.