Market Extra: Turkish stocks rise, lira hits fresh record low after Erdogan wins re-election


Turkish stocks climbed on Monday, while the lira hit a fresh record low after President Recep Tayyip Erdogan was re-elected and embarked on his third decade in the top position.

The results of a runoff poll, after no clear winner emerged in the May 14 election, showed Erdogan with 52% of the vote, while his challenger, Kemal Kilicdaroglu, had 48%, with more than 99% of ballot boxes opened.

Turkey’s BIST index XU100, +4.35% rose 4.2%. The index has gained 94% over 12 months in local currency terms, as investors in the country have turned to the stock market to shelter from soaring inflation amid a severe cost-of-living crisis.

The country’s annual inflation dipped to just over 43% in April, but shot above 85% last year due to Erdoğan’s determination to cut interest rates despite price pressures, with the currency bearing the brunt of that. Some suspected the leader would have an election fight on his hands due to the country’s economic woes and a devastating earthquake that killed more than 59,000 people earlier this year.

The dollar  USDTRY, +0.52% rose 0.26% to a new high of 20.07 lira, tapping a new high of 20.08 lira. The lira has lost 23% in the last 12 months,

The U.S.-listed iShares MSCI Turkey ETF TUR, +3.03% fell 1.1% in late trading on Friday.

What’s next for Erdogan and Turkey? Wolfgano Piccoli, co-president, Political Risk Advisory with Teneo, said some policy-making adjustments could be seen ahead of March 2024 local elections. “Preserving a sense of economic stability through next spring will be a priority,” for Erdogan, he told clients in a note.

That could involve a gradual tightening of interest rates if the lira sees more intense pressure. “Thanks to his new additional five-year term, Erdogan could also try to secure new external financing from foreign allies by bargaining on foreign policy issues,” said Piccoli.

“The appointment of a new economy minister could also be used to convey the impression that Erdogan is willing to recalibrate his economic policy-making. The front-runners for the job are Lufti Elvan and Cevdet Yilmaz – both enjoy a good reputation but neither of them carries the political weight to oppose Erdogan,” he said.

“Only if faced with an imminent economic-financial crisis, Erdogan would endorse a dramatic U-turn to return to orthodox economic policy-making, before pivoting back to his favorite low interest monetary policy,” said Piccoli.

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