{"id":93099,"date":"2016-07-19T06:58:32","date_gmt":"2016-07-19T10:58:32","guid":{"rendered":"http:\/\/countingpips.com\/?p=93099"},"modified":"2016-07-19T06:58:32","modified_gmt":"2016-07-19T10:58:32","slug":"why-now-is-the-time-to-avoid-turkey","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2016\/07\/why-now-is-the-time-to-avoid-turkey\/","title":{"rendered":"Why Now is the Time to Avoid Turkey"},"content":{"rendered":"
July 19, 2016<\/div>
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By WallStreetDaily.com<\/u><\/a> \"Why<\/p>\n

The latest attempted coup in Turkey has driven down the market and the currency. So much so that lovers of emerging market investments may be tempted to bargain-hunt.<\/p>\n

Don\u2019t.<\/p>\n

Turkish President Recep Tayyip Erdogan has been drifting away from his commitment to democracy and free markets, and the recent coup seems to have encouraged his worst instincts, rather than his better ones.<\/p>\n

Further, Turkey is in a rough neighborhood. At least in the short term, it looks more likely to head towards the downside than the upside.<\/p>\n

Current Potential<\/h2>\n

At first glance, Turkey looks like a potential source for a Currency Stock investment.<\/p>

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The lira is down 12% over the last year, and could fall further. Meanwhile the stock market is down 8% in Turkish lira terms, so there would seem to be something to go for there, too.<\/p>\n

As you know, I generally like<\/em> the stocks of exporters with weak currency because this weakness increases export margins and has a leveraged effect on earnings.<\/p>\n

However, in Turkey\u2019s case, the deeper picture is not so attractive.<\/p>\n

For starters, Turkish inflation has been relatively substantial, at 7.6% in the year to June, so much of the benefit to exporters of the currency\u2019s devaluation, is wiped out by this increase in domestic costs.<\/p>\n

Then, while the country\u2019s growth rate is satisfactory enough \u2013 expected at above 3% in both 2016 and 2017 \u2013 Turkey runs a persistent current account deficit, expected at 4.7% of GDP in 2016, according to the Economist\u2019s<\/em> team of forecasters.<\/p>\n

While the budget deficit at 1.8% of GDP is more agreeable \u2013 certainly compared to the deficits in many Western economies \u2013 this could easily rise with the costs associated with domestic unrest.<\/p>\n

Who\u2019s In Charge<\/h2>\n

I\u2019m conflicted on Erdogan.<\/p>\n

When he first came to power in 2002 he was a breath of fresh air. The secular politicians backed by the Turkish military had exhibited very poor budgetary discipline and economic management, and had run Turkey into a position of high debt, rapid inflation, and budget instability that was very damaging.<\/p>\n

When Erdogan came to power, he appeared to be a Turkish version of Konrad Adenauer \u2013 the German postwar Christian Democrat leader, who by cutting back the state sector and encouraging business, produced the \u201cwirtschaftswunder\u201d \u2013 aka the economic miracle that propelled Germany into the prosperous country it is today.<\/p>\n

In principle, there would appear to be no reason why a Muslim equivalent of a \u201cChristian Democrat\u201d \u2013 religiously oriented, but moderately so, and dedicated to sound economic management, government integrity and prosperity \u2013 should not provide an attractive model for other Middle Eastern countries. The left regarded Adenauer as an authoritarian, too, but this was always an illusion created by his dour personality and extraordinary ability to win elections over his 14-year term in office.<\/p>\n

For his first decade in office, Erdogan did a decent job handling Turkey\u2019s economy, remained relatively pro-Western in his foreign policy orientation, and appeared to be a bastion of stability in the very troubled Middle Eastern region.<\/p>\n

However, in the last five years, he has shown an unpleasant tendency toward authoritarianism (last year\u2019s November election was pretty questionable) \u2013 not to mention press freedoms and civil liberties that have been endangered.<\/p>\n

In foreign policy, he has shown some hostility to Israel via an ill-advised friendship with the terrorist group Hamas which holds authority over the Gaza Strip.<\/p>\n

Ideally, Turkey will avoid a return of the pre-2001 secularists, who were incompetent socialists economically and would not have popular backing among the fairly devout Turks. Certainly a military regime would be unattractive, as well.<\/p>\n

Instead a liberalized Erdogan regime would be a much healthier option in order to make way for a more moderate leader, such as Abdullah Gul, the previous President. Unfortunately, the flow of Turkish politics seems to be in the other direction, with Erdogan clamping down after the coup\u2019s failure, and arresting thousands among the opposition. Whether these detainees were actually involved in the coup, or are simply on a list that Erdogan wants out of his opposition, we may never know.<\/p>\n

A more authoritarian Turkey will deter foreign investment, which will be bad for the economy.<\/p>\n

It will also become more corrupt, as the opposition forces that would normally expose corruption will be cowed into submission.<\/p>\n

Even after the lira\u2019s fall, therefore, it is not worth the risk of investing in the Turkish market.<\/p>\n

While I don\u2019t entirely oppose investing in countries run by authoritarian regimes, their protections against corruption and kleptocracy had better be really top-notch for me to advise taking any chances.<\/p>\n

Erdogan\u2019s increasing authoritarianism is sad news for the Turkish people, overall, as well as the Middle East in general. Not only will their civil liberties be curtailed, but it is likely Western governments will impose penalties to deter foreign investment in Turkey, thus destabilizing Turkey\u2019s economy, which is none too robust as it is.<\/p>\n

Turkey does not need to enter the EU to be successful, but it does need to be stable, market-oriented, and governed by the rule of law. Without these key factors, foreign companies will avoid investing there, and local companies won\u2019t prosper or expand internationally.<\/p>\n

Under Erdogan\u2019s increasingly high-handed rule, there is no guarantee that Turkey\u2019s economy won\u2019t reach a dire state \u2013 a state that investors should aim to avoid, as well.<\/p>\n

Good investing,<\/p>\n

Martin Hutchinson<\/p>\n

The post Why Now is the Time to Avoid Turkey<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

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 <\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com The latest attempted coup in Turkey has driven down the market and the currency. So much so that lovers of emerging market investments may be tempted to bargain-hunt. Don\u2019t. Turkish President Recep Tayyip Erdogan has been drifting away from his commitment to democracy and free markets, and the recent coup seems to have […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-93099","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/93099","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=93099"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/93099\/revisions"}],"predecessor-version":[{"id":93117,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/93099\/revisions\/93117"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=93099"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=93099"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=93099"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}