Turkish Markets Slump As Runoff Election Looms
TEHRAN (Tasnim) – Turkey's markets experienced a significant slump as the nation headed for a runoff election, surprising investors who had anticipated an end to President Recep Tayyip Erdogan's two-decade rule.
The benchmark stock index, BIST-100, plummeted by up to 6.7%, triggering a circuit breaker, before partially recovering. Turkey's dollar bonds suffered notable losses in emerging markets, and the cost of insuring the debt against default surged. The lira also declined by 0.4% against the dollar, prompting state lenders to intervene in order to limit the losses, as reported by anonymous sources familiar with the matter, according to Bloomberg.
Investors, closely monitoring the elections to determine whether to reinvest in Turkey's $900 billion economy.
Erdogan is now facing Kemal Kilicdaroglu in a second round of voting on May 28, as neither candidate secured the necessary 50% of votes for an outright victory on Sunday. Erdogan's better-than-expected performance and his party alliance's majority in parliament suggest that he has the momentum to win, according to strategist Hasnain Malik from Tellimer in Dubai.
"This is a major disappointment to investors hoping for a win for opposition candidate Kilicdaroglu and the reversion to orthodox economic policy he promised," stated Malik. "The two weeks ahead will be characterized by a high level of uncertainty."
By Monday morning, with over 98% of the ballot boxes counted, Erdogan had received 49.3% of the votes, while Kilicdaroglu secured 45% support. Although it is still possible for Erdogan to claim victory in the first round, a runoff contest appears to be the most likely outcome.
The lira weakened to 19.6578 per dollar, representing a 0.4% decline as of 10:34 a.m. in Istanbul. Earlier, state banks intervened to maintain the exchange rate at around 19.65 per dollar, according to sources who requested anonymity since the information was not public.
Since 2018, the Turkish currency has been under pressure as Erdogan implemented a series of unconventional policies, including interest rate cuts to stimulate growth amidst surging inflation, exchange rate controls, and state intervention. Bloomberg Economics estimates that the central bank has conducted nearly $177 billion worth of stealth interventions in the market over the past 16 months.
Piotr Matys, a senior currency analyst at In Touch Capital Markets in London, predicts that "backdoor foreign exchange interventions are likely to continue over the next two weeks to keep the lira relatively stable."
Analysts from JPMorgan Chase & Co. and HSBC Holdings Plc anticipated the lira to depreciate to approximately 24-25 per dollar before the elections. Goldman Sachs Group Inc. strategists noted last week that the market is pricing in a "sharp devaluation," the timing of which is difficult to predict.
Turkey's dollar bond due in 2047 experienced a drop, causing the yield to increase by 83 basis points on Monday to 9.19%, on track for the highest close since February. Additionally, Turkey's five-year credit default swaps surged by almost 100 basis points to 605 points, the highest level since April.
