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Investing in Turkey in 2014: Storm clouds brewing

Turkey's messy 2013 and start to the year is worrying politicians and investors alike. As the war in neighboring Syria threatens to have knock-on effects and Prime Minister Recep Tayyip Erdogan struggles to contain an engulfing corruption probe, investors are thinking twice about the stability of the country. Known as the nation that bridges the gap between East and West, Turkey is also battling high inflation, low growth, and a weak stock market and lira.

Here's a look at what's worrying investors about Turkey.

Mustafa Ozer | AFP/Getty Images

Sectarian divides in Turkish politics

In its Top Risks 2014 report, risk consultancy Eurasia highlights Turkey as one of the Top 10 risks, and argues sectarian identities are playing a larger role in Turkish politics. The gap is widening between Sunni and Alevi communities. As Turkey continues to scale back support for militant Sunni groups, which increasingly are being run by extremists, Erdogan is set to strengthen his nationalist/conservative base up to the elections.

(Read more: Why this 'fragile five' currency is at record lows)

According to David Gordon, Chairman and Head of Research of Eurasia Group, after the violent Gezi Park protests last year, Erdogan has had to refocus his efforts on rebuilding confidence from within his own party, and he has therefore not had the capacity to reach out as much to the Kurds to continue the peace process talks with the Kurdistan Workers' Party (PKK).


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