What's going on?

Turkey�s Prime Minister is resigning � and the power of President Erdogan just got another big boost. The Turkish lira (its currency) and Turkish stocks sold off as jittery investors feared what the departure of the Prime Minister would mean for investments in the country.

What does this mean?

Much of this news is political, but there are economic and investment-related impacts too. While in better shape than many emerging market (EM) economies, Turkey is suffering from high inflation and a declining growth rate. At times like these, international investors like to see stability � not political turmoil. Also, President Erdogan has tried to interfere with the independence of Turkey�s central bank (a major �no no� in the view of investors) and the Prime Minister had tried to stand in the way of that. Essentially, the market reaction to this news suggests that investors do not like this political upheaval.

Why should I care?

The bigger picture: International investors often run for the hills when countries show signs of becoming less democratic. That�s because centralization of political power can raise concerns about things like property rights and the rule of law (i.e. the risk that your investments might be seized by the government). This doesn�t appear to be happening in Turkey (yet), but as such political risks increase, investors are more likely to take their money out of the country than to put more money into it – which is part of the reason why Turkish stocks sold off on Thursday.

For markets: Emerging market stocks and bonds are taking a breather. They had a great run higher during March and much of April, but have had a rough past week or so. That�s often quite natural after such a strong rise, but news like this from Turkey serves as a good reminder why emerging markets are risky.