A month after the attempted coup, investors exposed to Turkey are still feeling the effects of the resulting uncertainty. Yet while a moderate negative impact bites in the short-term, Turkey’s investment outlook is likely to see a return to its pre-coup state within the next year – characterised by instability but high returns.

Markets dipped in the immediate aftermath of the 15 July coup attempt. Both the value of the lira against the dollar and the BIST stock exchange fell by 7%.

As these metrics are indicators of investor confidence, their gradual upticks since 18 July are the beginnings of a cautious return to normality. The lira rebounded by 1.3% on the Monday following the Friday coup attempt, and despite setbacks over the past few weeks, it has tracked slowly back towards precoup levels. 

BIST-listed equities have also seen slow returns to health. This is largely due to a reduction in investor uncertainty over how the coup attempt will affect the government

Measures by Turkey’s central bank on 17 July designed to prop up the country’s financial institutions by injecting “necessary liquidity, without limits” helped stave off some of the worst effects of the uncertainty − calming the currency and equity markets.

Despite these confidence-building measures, investors exposed to Turkey have been taught a harsh lesson: that a latent political risk existed, unbeknown to most, which now needs to be priced into future investments.

State of emergency 

Further volatility was caused when President Erdogan declared a state of emergency on 20 July, leading to another decrease in the value of the lira. Despite this, the impact of the state of emergency on business in Turkey has been relatively limited.

Specialised businesses have faced the majority of controls under the state of emergency, particularly those that utilise explosives – such as mining companies. Minor operational hurdles have been put in place for these companies, including the requirement of tighter security measures and increased oversight. Yet this hardly amounts to wholesale disruption.

Turkey’s travel and tourism sectors, which accounted for 13% of GDP in 2015, are likely to be the most adversely affected part of its economy. Already struggling due to a prolonged wave of terrorist attacks concentrated mainly in Istanbul and Ankara, the sector has now been hit further. 

Key destinations such as Istanbul and Antalya recorded drops of 35-40% in tourist arrivals in July compared to last year; figures for the following months will provide a clearer picture.

Despite efforts to control the situation, including government subsidies and diplomatic reconciliation with Russia and Israel, the attempted coup has meant that these measures are unlikely to have a positive impact on tourist arrivals until next year. 

Domestic economy

Despite the recent negativity, consumer-orientated sectors will help drive growth over the next year. Sectors such as FMCG and food are unlikely to be heavily affected beyond the short-term, mainly due to Turkey’s strong consumer demand. Demographics work to Turkey’s advantage here, as a growing percentage of the population (67%) are at working age and there is a burgeoning middle class.

Key infrastructure projects such as the Avrasya Tüneli (Eurasia Tunnel), İstanbul Yeni Havalimanı (Istanbul New Airport), motorways and high-speed rail links are likely to remain a priority for the government. As these mega-infrastructure projects, expected to be completed by 2018, are a central part of the government’s economic strategy, it is unlikely to let them fail.

Growing domestic demand for housing combined with interest from foreign investors, particularly from the Middle East, is likely to increase prospects in assets linked to construction. 

All things considered, unless an unlikely further coup takes place, investor confidence will slowly increase over the next year from a “wait and see” approach to pre-coup levels. 

Ali Sökmen is a Turkey analyst at Control Risks