Election Comments From Foreign Fund Managers: If Erdogan Wins, Economic Imbalance Will Continue

International fund managers continue to share their assessments of the election results. Foreign investor interest in Turkish assets is unlikely to return as Erdogan’s chances of winning are rising, experts say.

President Recep Tayyip Erdoğan and Nation Alliance presidential candidate Kemal Kılıçdaroğlu failed to get above 50 percent in the elections held on Sunday. Erdoğan received 49.5 percent of the vote, and Kemal Kılıçdaroğlu received 44.89 percent of the vote.

Erdogan’s choice of leader frustrated the expectations of foreign investors. Foreign investors expected a return to orthodox monetary policy if the opposition won. However, experts say this will be difficult if current policies continue.

‘ECONOMIC IMPLEMENTATION CONTINUES’

As quoted by Reuters, Dan Wood, William Blair’s emerging markets portfolio manager, said: “From the market reaction so far, it’s very clear that the market expects Erdogan to win in the second round.”

“Markets are reacting to the reality that we will likely go back to the previous administration and continue with the policies that have made Western fund managers virtually unable to invest in Turkey,” said Jon Harrison, managing director of emerging markets at the consultancy TS Lombard, based in London.

ATTENTION TO THE RISK SCORE

On the other hand, Turkey’s credit risk premium (CDS), which fell below 500 points last week, broke above 600 today and hit a six-month high. The CDS, which shows the cost of insuring Turkey’s 5-year debt against bankruptcy, rose more than 150 basis points to 652 basis points compared with Friday.

“For the last three years, I refuse to guarantee credit risk or payment risk in Turkey,” said Crispin Hodges, policy strategist at international insurance company Canopius Group, commenting on the massive rise in CDSs.

Hodges said: “The fact that Erdogan is in power means for us that the status quo will continue. “Due to the state of the economy, inflation, the weak currency and their political strategy, we will continue to reduce trading in Turkish assets,” he said.

CONTINUED ECONOMIC IMBALANCE

According to Richard Briggs, a senior fund manager in the emerging markets unit of New York-based wealth management firm Candriam, Erdogan’s victory; It means continued economic instability, unorthodox monetary policy and costly efforts to support the lira.

“Without a credible policy framework, the pressure on the currency and the economy could be severe if Turkey continues to run large current account deficits,” Briggs said.

FITCH: THE UNCERTAINTY IS LONG

The Fitch rating agency also noted that the pressures in the balance of payments area increased due to the policies implemented yesterday in Turkey, and that the political and economic uncertainty in Turkey due to the second round elections will remain at least until the end. Of the month.

In the memorandum released yesterday by Fitch, it was indicated that the economic policies that will be implemented after the elections will be followed.

In the note, it is stated that the government that will be formed after the elections will face problems such as deferred demand for foreign currency, pressure on the lira, a large budget deficit, declining international reserves and high inflation.

In the note it was indicated that it will be verified if the combination of monetary and fiscal policy is more reputable and consistent in terms of credit rating, and it will be monitored how much it provides confidence, how much it reduces risks at the macro level and financial stability, and if it will facilitate the access to external financing.