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Monday, November 27, 2023

Turkey’s stock market experienced a drop after the President shared criticism of Israeli and its allies

Turkey's stock market experienced a shock on Wednesday as President Recep Tayyip Erdoğan heightened his criticism of Israel and its allies.

Turkey’s stock market experienced a significant shock on Wednesday as President Recep Tayyip Erdoğan heightened his criticism of Israel and its allies. This came at a critical juncture when Turkey was in dire need of western investment to fuel its economic overhaul. The benchmark Bist 100 index plummeted by more than 7 percent, marking its most significant slide since early February, according to FactSet data. The abrupt drop triggered a series of trading curbs known as “circuit breakers” designed to calm jittery markets.

Erdoğan’s Remarks

The turmoil in the Turkish stock market was further exacerbated by President Erdoğan’s comments. In an afternoon statement, he criticized Israel’s actions in Gaza, labeling them as “murderous” and suggesting a state of “mental illness” for both the perpetrators and supporters of these actions. Erdoğan also made the contentious assertion that Hamas, often regarded as a terrorist organization, is a “group for liberation” rather than a threat. These statements came in the wake of a brutal attack on Israel by Hamas militants in October, which resulted in significant casualties.

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Shift in Rhetoric

Erdoğan’s stance on the Middle East crisis had initially been more balanced. However, recent days have witnessed a notable escalation in his criticism of Israel, with accusations of “genocide.” He has also expressed disapproval of the United States’ decision to deploy military assets to the Middle East and its broad support for Israel.

Economic Implications

The timing of this conflict between Israel and Hamas is critical, as Turkey grapples with a prolonged economic crisis. It seeks to regain the confidence of investors who had fled the market due to years of unorthodox policymaking that contributed to runaway inflation and economic imbalances.

Need for Western Investment

Finance Minister Mehmet Şimşek has been actively courting investors in the United States and Europe, emphasizing the importance of improving relations with the West. This strategy is a key pillar of Turkey’s economic revival, initiated after Erdoğan’s re-election in May. These efforts are aimed at securing much-needed investments to kickstart the country’s economic recovery.

Market Reaction and Investor Sentiment

The turmoil in Turkey’s stock market unfolded as President Erdoğan addressed a meeting of his Justice and Development party in parliament. One Turkish capital markets banker noted that his remarks had a detrimental impact on investor sentiment. Furthermore, once the market began to decline, high-speed trading firms that follow market momentum exacerbated the selling pressure. The previous two trading days had seen substantial market gains, meaning that there were fewer “marginal buyers” willing to step in during the decline.

Managing Economic Volatility

Despite the stock market turbulence, Turkey’s international assets demonstrated a relatively muted response. Yields on Turkey’s dollar-denominated bonds saw only a slight increase, and the cost of protecting against a default using credit default swaps remained relatively stable. Additionally, the Turkish lira held steady at TL28.12 against the US dollar.

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Turkey’s stock market experienced a sharp downturn due to the confluence of political tensions and a desperate need for western investment to bolster the nation’s economic transformation. President Erdoğan’s provocative statements on the Israel-Hamas conflict contributed to a challenging economic environment. This situation underscores the importance of diplomacy and economic stability in a time when Turkey is striving to recover from a prolonged financial crisis and rekindle the interest of international investors.