What's going on?

After a major agency downgraded its assessment of the country�s bonds to �junk� (yes, that�s a technical term!), Turkey�s currency fell in value and its stock market dropped 4%.

What does this mean?

Moody�s, the credit ratings agency, had published a notice immediately after July�s attempted coup saying that it was considering downgrading its assessment of Turkey�s bonds (just like a credit report on you as an individual, agencies like Moody�s provide an assessment of the creditworthiness of companies and countries). In its announcement, Moody�s cited (among other things) Turkey�s unpredictable political developments and volatile investor perception. While there is certainly an economic component to its assessment, Turkey�s tumultuous domestic politics (and associated violence) appear to be the main catalyst for the downgrade.

Why should I care?

For markets: It makes foreign investors less likely to own Turkish investments.
Many institutional investors do not allow themselves to invest in �junk-rated� bonds because of their high risk. In practice, that means many investors will have to sell their investments in Turkey and/or not buy new ones � which of course is a negative for Turkish stocks and bonds as well as the value of its currency.


The bigger picture: Political risk can be high in �emerging markets.�
Turkey is often referred to as an �emerging market,� which is a term that describes an economy that�s still developing. It�s kind of like a teenager trying to grow into an adult. And as with teenagers, there are growing pains and heightened volatility! One of the sources of that volatility is often a frazzled political situation, as is the case in Turkey as well as other �emerging markets� like South Africa and the Philippines.