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Turkey: AKP marks a surprise victory – TDS

FXStreet (Delhi) – Paul Fage, Senior Emerging Markets Strategist at TD Securities, notes that the AKP confounded the opinion polls and secured a resounding victory in yesterday’s parliamentary elections, achieving a comfortable majority.

Key Quotes

“Preliminary results show that the AKP has won 49.5% of the vote. This is close to the all-time high for the AKP of 49.8%, which the AKP reached in the June 2011 elections, a time when the economy was doing much better than now. The AKP will get 317 seats in the parliament, well above the threshold of 276 required for an absolute majority. It is also not far below the 330 threshold needed to change the constitution with an accompanying referendum.”

“With political uncertainties having unexpectedly and suddenly evaporated, it is not surprising that Turkish assets have rallied. USDTRY is currently at 2.797, down about 4.0% on the day, having at one point been as low as 2.758, 1-year cross-currency swaps are down about 39 bps to 10.50%. We think that further gains are possible in the near-term as there were a lot of short Turkey positions going into the elections and 10% plus yields may attract new money.”

“In the medium to longer-term, the picture is not so obviously rosy. The country remains politically polarized. The conflict with the PKK remains unresolved and, with the war in neighbouring Syria raging, geopolitical risks are high.”

“It is possible that having convincingly won power again the AKP will adopt a more unifying stance in both its rhetoric and policies. In the near-term, a positive sign would be if the new government has Babacan, and Simsek, both economically moderate and respected by the markets, in prominent positions. The government could also try to restart the Kurdish peace talks. However, we remain sceptical and think that the jury is very much out on the longer-term future direction of Turkish politics. Based on past performance we are inclined to pessimism.”

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