‘The Economist’ wrote a controversial article with the aforementioned title on July 19th, 2008. At the time, prospects for Turkey’s ruling AKP party were under fire, and Prime Minister Erdogan had plenty of back pedaling to do. Anti-secularism would have spelled the death of his bid for European Union acceptance.

This week the Constitutional Court rejected the proposed ban of Erdogan and his political party. Instead, they fined him for “anti-secular” behavior, and the stocks in Istanbul celebrated big time.

On Friday, the Turkish stock market flashed a very positive divergence versus weakness across equities, globally. Turkey’s ISE National 100 Index closed up +1.9% on the day, taking its ramp up 10,000 feet from the thralls of potential political disaster on July 1st where the market was trading at 33,208,-29% lower!

I’ve attached the roller coaster 3 year chart of Turkey as it tells many stories within the “it’s global this time” stock market narrative. On October 15, 2007, at the peak of global equity euphoria the ISE Index closed at a nosebleed height of 58,231.The levered long community saw no tail risk to Ataturk’s long standing secular Republic coming under geo-political fire – why would they? Did they even know what it meant?

Obviously, there were winners and losers coming out of those October 2007 highs. Turkish stocks ended up losing -43% of their value from that peak to the July 2008 trough. Ouch.

I model all country level stock index performance daily (globally) as it often issues me clues as to where tail risk lies. I am in the camp that the global economy is an increasingly interconnected and complex system of factors that need to be respected before they are fully understood.

Understanding Turkey’s domestic arm wrestle between their dominant Islamic faith and secular aspirations to be accepted into the European Union is a fascinating one as it pertains to global geo-political tail risk. It may not be a widely known statistic on Wall Street that there are approximately 1 billion Muslims in a world of 6 billion people. But that certainly doesn’t mean that the reality of these numbers cease to exist.

It is global this time, indeed. America’s grip on “leading” the world is loosening, and we need to pay attention to all of the critical factors underlying where the world is headed next. Turkish politics have the Europeans on their toes – the “Caliph” of Istanbul’s return would wake American’s up in a hurry too.

  • The ISE National 110 Index
(Chart courtesy of Stockcharts.com)