Election Comments from Economists at Global Financial Companies

Although Turkey is locked in the May 14 elections, investors listed on the markets continue to closely follow the elections.

Markets are wondering if there will be any drop in exchange rates after the election and how quickly assets in Turkey will stabilize. In addition, it is closely monitored whether the changes that may occur after the elections will support sustainable growth for the Turkish economy.

So how do experts working at financial institutions operating in global markets assess the elections?

The US financial agency Bloomberg interviewed a group of strategists and asked them how they interpreted the possible developments after the elections on Sunday. The experts commented on the possible scenarios and possible developments after the elections.

SCENARIO 1: KILIÇDAROĞLU AND THE VICTORY OF THE OPPOSITION

In case of victory of Kılıçdaroğlu and the opposition, the experts interpreted the possible developments as follows:

* Viktor Szabo, chief investment officer at London-based Abrdn: Markets want to see political stability and orthodox macroeconomic policies. A possible victory for Kılıçdaroğlu/opposition will bring us closer to a positive result for the market.

* Sergey Dergachev, head of emerging markets at Union Investment Privatfonds GmbH, based in Frankfurt: Expectations are high that Kılıçdaroğlu will pursue a more orthodox monetary policy. He could even support short-term lira gains and lower credit spreads. If there is a slow and difficult change in policy, then volatility in the lira and credit markets may intensify.

* David Austerweil, deputy portfolio manager with responsibility for emerging markets at Van Eck Associates: After the election, the lira may “suddenly” lose value until the new government appoints its own team to manage the economy. With the lira bottoming out, both local depositors and foreign investors could start converting the dollar to lira as the new government is expected to introduce massive rate hikes to attract foreign capital.

* Cristian Maggio, strategist at Toronto Dominion Bank: We believe that the return to orthodox economics will be more gradual. The risk of a currency explosion, which will also suppress economic expansion, can be very costly politically. Lifting all restrictions overnight can be disastrous. They are likely to start raising interest rates first, and then gradually ease restrictions on currency trading.

SCENARIO 2: ERDOGAN’S VICTORY

The experts made the following comments about possible developments in the markets after a possible victory for Erdogan and AKP:

* Union Investment Analyst Dergachev: We expect a subdued reaction in the foreign exchange and credit markets in this scenario, as low foreign ownership limits the downside. The real question will be whether Erdogan will change his unorthodox monetary policy.

* Ulrich Leuchtmann, Head of FX Strategy at Commerzbank: Low rate policy appears to be the cornerstone of President Erdogan’s political agenda and is therefore unlikely to change if he remains in office.

* Sebastian Kahlfeld, Portfolio Manager at DWS Investment: Maintaining the status quo means continuing with existing policies that have put Turkey in a difficult position and led to large-scale withdrawals from international investors. In this scenario, there is little hope of returns for equity and fixed income investors.