Why Turkey's Tuesday Stock Market Meltdown Is A Much Bigger Deal Than You Think

Of course, it dragged down the iShares MSCI Turkey ETF (which also fell 5%), but it also dragged down the iShares MSCI emerging markets ETF by almost 1%.

This is something to watch, as it appears the fall was caused by factors that aren't going away any time soon.

Turkey's tumble was caused by political factors, a battle between Prime Minister Recep Tayyip Erdogan, and his new opposition, lead by a cleric in self imposed exile named Fethullah Gulen.

Despite the fact that he's been living in Pennsylvania since 1999, Gulen is the country's most powerful Muslim cleric. This week, Erdogan arrested 22 of Gulen's high-powered alleged supporters. This includes the children of three of his cabinet ministers, construction magnate Ali Agaoglu, and Suleyman Aslan, the CEO of state-owned lender Turkiye Halk Bankasi AS (HALKB).

Halk Bankasi shares plunged 9% from the beginning of the month as a result.

The problem here is that the Gulen v. Erdogan showdown is just coming to a head now, though it's been brewing for some time.

The two leaders are from the same Muslim AKP party, which rose to power in 2002. Together, they helped take power away from the army, but since then Gulen has become more moderate. During this summer's violent protests he was especially critical of the government.

In recent weeks, members of the AKP party have defected out of loyalty to Gulen as well.

Erdogan, for his part, has accused Gulen and his supporters of creating a "parallel state" within Turkey.

So if the Prime Minister means what he said, this crack down isn't over. Twenty-two conspirators does not "parallel state" make, so it's very likely that these arrests have not mollified Erdogan and his camp.

Pay attention to that.