Turkey stocks rally, lira slips to record low after Erdogan victory

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LONDON — Turkish President Tayyip Erdogan gained re-election in a runoff vote, extending his rule into a 3rd decade. The nation is grappling with a value of residing disaster, a plunging forex and depleted overseas reserves.

MARKET REACTION:

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LIRA: The Turkish forex touched a contemporary report low of 20.105 on Monday. It has fallen greater than 7% because the begin of the yr, and misplaced greater than 90% of its worth over the previous decade.

DEBT: Turkey’s worldwide bonds had been blended, with the 2030 problem gaining 0.5 cents whereas different maturities eased 0.2 cents. 5-year credit score default swaps had been hovering at Friday’s closing degree.

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STOCKS: Turkey’s benchmark index gained 4.4% on Monday whereas the banking sub-index was buying and selling 3.1% increased.

COMMENTS:

MINNA KUUSISTO, CHIEF ANALYST, DANSKE BANK

“Recep Tayyip Erdogan has sealed his iron grip on Turkey. Within the absence of a u-turn in his financial insurance policies, the danger of an acute forex disaster looms.”

“In a situation the place Turkey ran out of overseas forex, lira’s worth would doubtless collapse, inflation would explode and items shortages might happen. Turkish corporates with giant overseas liabilities would face rising rollover threat.”

JEFF GRILLS, HEAD OF EM DEBT, AEGON ASSET MANAGEMENT

“The primary concern for Turkey is its ongoing challenges in sustaining financial stability and attracting investor confidence. The election end result, with Erdogan securing a strong majority, suggests a continuation of insurance policies which have contributed to a decline within the nation’s fundamentals.”

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“The depreciation of the lira and the pressure on already low reserves add to the issues for bond traders. Buyers will deal with Erdogan’s capability to implement substantial change in coverage to handle these challenges. Nonetheless, given the expectation {that a} vital transformation is unlikely, Turkey’s financial difficulties and the underperformance of USD bonds within the medium time period are anticipated to persist.”

ROGER MARK, ANALYST NINETY ONE

“In our view, Erdogan’s greatest problem is Turkey’s economic system. His victory comes in opposition to a backdrop of perilous financial imbalances, along with his heterodox financial mannequin proving more and more unsustainable.

“With out a change in coverage path, Turkey is heading in direction of a extra excessive balance-of-payments disaster with a rising probability of tighter capital controls. In an excessive situation, this might see the ‘lirafication’ (pressured conversion) of residents’ in depth greenback deposits and the prospect of Turkish debtors defaulting on exterior obligations.”

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HASNAIN MALIK, HEAD OF EQUITY RESEARCH AT TELLIMER

“An Erdogan win provides no consolation for any overseas investor. A painful disaster affecting all belongings is on the way in which, with very excessive inflation, very low rates of interest and no internet overseas reserves. Solely probably the most optimistic would hope that Erdogan now feels sufficiently safe politically to revert to orthodox financial coverage.”

CLEMENS GRAFE, CO-HEAD OF CEEMEA ECONOMICS, GOLDMAN SACHS

“In contrast to the primary spherical outcomes which got here as a shock to markets and markets strongly reacted, we predict the end result of the second spherical was now principally anticipated and we might not anticipate a lot of a direct market response. The main focus of the market will proceed to be on the TCMB’s FX reserves and the TRY (Turkish lira). Worldwide reserves have repeatedly fallen because the starting of the yr and are near ranges when beforehand TRY volatility sharply elevated.

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“With the election now behind us, we put our price forecast on maintain. Our earlier forecast was chance weighted relying on the election end result. With President Erdogan now re-elected we are going to swap again to a modal forecast.”

SERDAR PAZI, RESEARCH GROUP DIRECTOR AT GLOBAL SECURITIES

“We could observe a short-term rally in equities, notably consistent with the change price, which is prone to keep above 20 ranges. Exporters could profit considerably within the meantime. Mr. Erdogan praised the low-interest price coverage throughout his marketing campaign in addition to in his victory speech final night time. We expect a reversal of this coverage stays unlikely, at the very least till the native elections, which might be held on the finish of 1Q24. In the meantime, the authorities might proceed to depend on restrictions and rules to maintain the TRY depreciation in verify amid a excessive present account deficit and low FX reserves.”

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ERCAN ERGUZEL, BARCLAYS

“In opposition to the image of belongings and liabilities…and rising exterior financing prices, we’re of the view that Turkey wants changes to each FX and charges. Comparatively mild strain from exterior financing wants over the summer time supplies a chance to make this adjustment step by step.”

THOMAS GILLET, DIRECTOR OF SOVEREIGN RATINGS, SCOPE RATINGS

“Capital controls and macroprudential measures, comparable to limits on money withdrawals, the deposit safety scheme, and coercive actions on banks’ portfolio allocations, are prone to stay on the core of Turkey’s financial insurance policies.

“Turkey will want extra bilateral and principally unconditional exterior help, within the type of direct lending, forex swaps, and power commerce agreements, to partially ease acute pressures on stability of funds and exterior buffers.

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“Deepening macroeconomic imbalances, ensuing from erratic policy-making, would inevitably improve the dangers of a disorderly adjustment and make any interval of coverage normalization extra complicated to navigate within the longer run.”

ERIK MEYERSSON, CHIEF EM STRATEGIST, SEB GROUP

“We anticipate Erdogan to see his re-election, albeit below excessive authoritarian establishments and within the absence of free and honest elections, as vindication to his broad menu of insurance policies, financial and overseas.

“The mix of the coverage atmosphere, deteriorating financial fundamentals, the upcoming election cycle, and anticipated overseas coverage challenges depart Turkey weak to varied shocks, home and exterior.”

TUNCAY TURSUCU, FOUNDER OF TUNCAY TURSUCU RESEARCH AND CONSULTING

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“Yesterday, President Erdogan’s economy-oriented assertion and his emphasis on an internationally revered monetary administration have created an expectation within the markets for a change in present financial insurance policies. It may be stated that this additionally has an impact on at present’s aggressive (inventory) purchases.

“Nonetheless, to ensure that this rise to be everlasting, it’s essential to find out the Cupboard, to make clear the names that can come to the economic system administration, and to announce a brand new roadmap, if any, on the economic system.”

(Reporting By Karin Strohecker, Libby George, Canan Sevgili and Rodrigo Campos; modifying by William Maclean and Mark Heinrich)