Egypt and Turkey: the View from the Equity Markets
Some Egyptians seem to think that the Erdogan’s government opposition to the July coup against Morsi is rooted in a fear that the Egpytian anti-MB revolution/coup represented an “existential threat” to the Turkish government. This seems far-fetched, at least in light of the substantial achievements of the Erdogan government since it came to power a decade ago. Moreover, its success is reflected in the equity markets of each nation: Turkey has massively outperformed Egypt as well as a broad index of emerging equity markets (EEM) over the last five years, as this graph shows (TUR is the red line; EGPT is the green line; EEM is the blue line):
Markets, of course, are not always right, but they represent relatively educated guesses about the future; moreover, to a large extent, they also shape future expectations: a track record of market profits itself produces optimism that increases investments, and in turn, reinforces a cycle of positive growth. On the other hand, consistent losses discourage future investment, and thus risks producing the very same pessimistic outcome that the market is forecasting.