PHOTO
Investors were advised to “brace for volatility” in Turkish assets ahead of a second round of voting in the country’s elections.
Neither Presidential incumbent Recep Erdogan or the main challenger Kemal Kilicdaroglu have so far managed to secure the required 50% threshold in Sunday’s elections, meaning citizens are likely to be required to vote in a runoff on May 28th.
An update from Swiss bank Julius Baer’s analysts said the third candidate, Sinan Ogan, from the ATA alliance, got 5.3% of the votes, and could become the ‘kingmaker’ depending on which candidate he endorses.
“The results surprised market participants, since the latest polls were showing Kilicdaroglu leading and Ogan not reaching more than 2.5% of the votes,” analysts said.
“Furthermore, in the parliamentary elections, the People’s Alliance of Erdogan’s AKP party is on track to maintain its majority with 325 seats (out of 600), so even if Kilicdaroglu wins in the second round, he would not have the needed support to proceed with reforms.”
The Turkish lira weakened to 19.62 against the US dollar despite market interventions by the central bank and state lenders to support the currency, the analysts said.
“We maintain our Sell/Speculative rating for Turkish sovereign bonds and Underweight for equities as the economic backdrop remains challenging.
“We expect a lot of volatility in Turkish assets, in particular the currency, ahead of the second round. A change in Turkey’s political leadership and a return to more orthodox economic policies would lead us to reassess our view, but the final outcome will not be known for another two weeks.”
Turkey has seen economic challenges and record-breaking inflation, which peaked at 85.5% in October. The Turkish lira has been weak, trending downwards following a rally in December 2021, according to Refinitiv data.
(Writing by Imogen Lillywhite; editing by Brinda Darasha)
