Turkish assets clawed back some of the previous day's heavy losses on the morning of Tuesday, June 4, but the beginning of a two-day strike by a union federation and news of a second protestor dying overnight promises to keep the markets on edge.
On June 3, investors were predictably rattled by events on the first day of trading since the protests began escalating on May 31, with the worry being that profit-taking would take off. The main Istanbul share index closed down 10.47% lower on June 3, but by mid-morning trade on June 4 was up almost 4% at 79,968. The lira strengthened to 1.8804 against the dollar from 1.8892 late on Monday, when it hit its weakest level since January 2012.
Nevertheless, there is little sign the protests will abate as the wide-scale protests stretch into a fifth day, with Prime Minister Recep Tayyip Erdogan maintaining his forceful attitude toward the protestors.
The violent clashes between protestors and police on June 3 took place in close to 70 Turkish cities. The original small-scale protest over the redevelopment of a park at Taksim Square in Istanbul has long been overtaken by the wider opposition to the perceived creeping authoritarism and Islamic agenda of Erdogan's ruling AKP.
Reports that a protestor was run over and killed by a taxi in an incident that also involved a police car late on June 2 fuelled the anger sweeping the country, while the PM offered yet more confrontational language before jetting off to a meeting in Morocco. Such calculated moves to illustrate his supreme confidence suggest the government is ready to meet the fury of the country's secular population in a high stakes fight.
That gambit only grew in daring following reports late on June 3 that a protestor in the Hatay Province was shot in the head and killed by an unknown assailant. The border region with Syria has already exploded with fury in recent weeks, protesting Erdogan's policy towards the Assad regime, in the wake of bombings that killed dozens.
Another of the PM's coup's also looks at risk. The Kurdish regions of the country have been notable for their restraint in joining the protests, perhaps feeling they are frying bigger fish right now. However, the feted ceasefire with the armed Kurdish separatist Kurdish Workers' Party (PKK) may also now be at risk of unravelling. Turkey's general staff reported on June 3 a "group of terrorists" had opened fire and wounded one member of the Turkish gendarmerie. While nationalists have been angered by Erdogan's deal with the outlawed PKK, the agreement to end the 30-year conflict has been a significant feather in his cap with everyone else.
It's that kind of ego boost that appears to be driving the PM's hardline stance against the protestors - one that many analysts suggest misreads the mood in the country. Insisting that four days of anti-government protests do not constitute a "Turkish Spring," Erogan said just ahead of his three-day trip to North Africa that the protests are organised by extremists and accused the opposition of provoking "his citizens".
"There are those attending these events organised by extremists. This is not about Gezi Park anymore. These are organised events with affiliations both within Turkey and abroad," the PM thundered. "The main opposition party CHP has provoked my innocent citizens. Those who make news [and] call these events the Turkish Spring do not know Turkey."
Following his June 3 move to bring AKP's Islamist support on side by declaring a mosque will be built at the Taksim site, he went after Turkey's nationalist voters. "Our intelligence work is ongoing [to determine the foreign actors behind the protests]. It is not possible to reveal their names. But we will have meetings with their heads," said Erdogan, according to Hurriyet Daily News.
"Those who advise us to be moderate must themselves first come to moderation," he said, referring to the international reactions to the use of force.
By way of contrast, President Abdullah Gul - who has looked to plough his own furrow despite his AKP roots - sought to defuse the tension, urging calm and promising protesters that their legitimate complaints have been noted. "Democracy does not only mean elections," Gul said, according to AFP. "The messages delivered with good intentions have been received ... I am calling on all my citizens to abide by the rules and state their objections and views in a peaceful way, as they have already done."
Between two stools
Most analysts agree with Erdogan that this is no "Turkish Spring" likely to result in regime change. As they rightly point out, conditions in Turkey are far from those in countries such as Egypt. While the clashes that saw the likes of the Mubarak regime fall were prompted by a severe lack of freedom and opportunity that saw food price inflation spark riots and huge demonstrations, Turkey has a growing middle class, to no small extent created by the AKP's dogged stewardship of the economy. That has most comparing them with last year's burst of protest in Russia, which has since all but fizzled out.
"While in Egypt, the demonstrations seem to have been fuelled by poverty and social depravation, this does not seem to the case in Turkey where the AK party has delivered a tripling of GDP per capita over the past decade," notes Tim Ash of Standard Bank. "These protests thus appear to primarily reflect a plea from Turkey's secular middle classes, liberals and also tuned with support from some disgruntled nationalists, and ethnic groups, such as the Alevi."
However, other commentators suggest a greater significance. Hugh Pope, a senior Turkey analyst with the International Crisis Group, told CNN that the protests are "completely unprecedented," and that Erdogan has been caught off guard.
Paul Mason, economics editor for the BBC's Newsnight, suggests that due to the sheer numbers and the demographic mix, the Turkish clashes fall in between the two stools of the occupy movement and the Arab Spring. "I have covered Syntagma in Athens, the Occupy protests and reported from Tahrir Square in Cairo. This is different to all of them. First, it is massive: the sheer numbers dwarf any single episode of civil unrest in Greece. Second, the breadth of social support - within the urban enclave of Istanbul - is bigger than Greece and closer to Egypt ... In Greece, the urban middle class was split; here the secular middle class is out in force, united across political divisions, to say nothing of football hatreds."
"Is this the Turkish Tahrir? Not unless the workers join in." It was a significant move then, when the Confederation of Public Workers' Unions (KESK) - one of Turkey's four major labour unions - announced it is to launch a strike on June 4. KESK said the "warning strike," in response to "state terror," will last for two days.
The worry is that Erdogan's confidence is misplaced, and that this time his talent for reading the mood has let him down. Certainly the markets are concerned that the troubles could continue for an extended period or take an unpredictable turn, although just how much of the plunge on the Istanbul Stock Exchange on June 3 - at 10.47% the biggest in a decade - was due to the protests and how much to the sell-off that began last week due to comments out of the US Federal Reserve last week is hard to tell.
Erdogan dismissed investors' concerns, according to the Financial Times, saying: "It's the stock market, it goes down and it goes up. It can't always be stable." He'd also likely point out - fairly - that the lira and Turkish debt has been under pressure recently also, and that the fall of the currency to its lowest against the dollar for over a year and the 71-basis-point rise in yields on two-year lira bonds are similarly unconcerning.
However, given the PM's broad grin when Turkey was finally handed a second investment grade rating in May, his apparent nonchalance towards the cost of borrowing - vital for a country with a huge current account deficit - and investment flows is unlikely to last long should the violence continue. That the events are taking place during the tourist season - which brings in around $20bn each year - is another black mark.
The main issue is that the clashes come at almost exactly the wrong time for Turkish markets. They've been on a massive rally during the hunt for yield pushed by the liquidity provided by the Fed and European Central Bank. Market "euphoria" reportedly kicked off in October by Fitch's award of a first investment grade for the sovereign in close to 20 years came to a head in May when Moody's Investors Service joined in, opening the way for the world's largest institutional investors to step into Turkey.
The immediate reaction last month was for the market to dip, as investors looked to lock in profits. Global markets meanwhile are on tenterhooks over the Fed's plans for its bond-buying programme - which has driven the emerging market bond rally. Capital Economics points out that: "Turkish equities face other headwinds. For a start, the country's large gross external financing requirement makes it especially vulnerable to a reversal of capital inflows when the Fed eventually scales back quantitative easing, and if - as we expect - the crisis in the euro-zone flares up again."
In short, the uncertainty over the protests is just another reason to sell, suggest analysts. "Simply put, on a risk-rewards basis, Turkey does not appear to offer convincing value at present, and investors would be well advised to adopt a cautious approach," Ash writes in a note.
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