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Uncertainty as Turkey prepares for runoff election

A supporter of Kemal Kılıçdaroğlu, presidential candidate of Turkey’s main opposition alliance, awaits the election results Reuters/Yves Herman
A supporter of Kemal Kılıçdaroğlu, presidential candidate of Turkey’s main opposition alliance, awaits the election results
  • Lira hits low despite market intervention by the central bank
  • Neither President Erdoğan nor rival Kılıçdaroğlu achieved majority
  • Gulf governments wary of investing in Turkey were Erdoğan to lose

Political uncertainty across Turkey is expected to be reflected on financial markets over the next two weeks as voters prepare for the second round of a presidential election.

Neither incumbent President Tayyip Erdoğan and his ruling AK Party nor his opposition rival Kemal Kılıçdaroğlu, head of a six-party alliance, achieved an outright majority in Sunday’s election, forcing a runoff vote to be held on May 28.

Turkey’s lira hit a two-month low on Monday, falling to 19.62 against the dollar, despite market interventions by the central bank and state lenders to support the currency.

Turkey-issued dollar bonds dropped by over 5 cents. And the Borsa Istanbul issued a market-wide circuit breaker after the benchmark index dropped more than 6 percent in pre-market trading, Reuters reported.

“We expect a lot of volatility in Turkish assets, in particular the currency, ahead of the second round,” said Eirini Tsekeridou, fixed income analyst at Swiss private bank Julius Baer.

Sunday’s election was considered the greatest test of Erdoğan’s 20-year rule. More than 64.1 million people were registered to vote, including over 1.76 million who cast their ballots abroad and 4.9 million first-time voters.

As of 9.45am local time on Monday, with 99 percent of the ballot boxes counted, Erdoğan had 49.40 percent of the vote, with Kılıçdaroğlu on 44.96 percent, Turkish Supreme Electoral Board head Ahmet Yener told reporters in Ankara.

Election turnout stood at 88.8 percent.

Erdoğan, who has been in power since 2003 – first as prime minister and then as Turkish president from 2014 – is unlikely to change his unorthodox economic policies should he remain in situ after the runoff election.

The central bank has slashed interest rates by more than half over the past two years – to 8.5 percent – despite annual inflation running at more than 43 percent, according to the latest official figures.

The election for Turkey’s 600-seat parliament was held at the same time on Sunday.

Should Kılıçdaroğlu become president in the runoff election he would need a 60 percent super majority to put an end to the executive presidency established by Erdoğan in 2018, returning the country to a parliamentary system.

Gulf countries, especially Qatar, have invested heavily in Turkey in the past few years despite the country’s malaise and poor returns from previous multibillion dollar deals as part of wider efforts to de-escalate tensions in the Middle East.

Gulf governments would be wary of investing further in Turkey were Erdoğan to lose, Bodrum-based independent Turkish economist Arda Tunca told AGBI last week.

“Should they find common ground with the new government, they might continue but they won’t get the special protections and privileges Erdoğan gave them. Kılıçdaroğlu will shake hands with them, but in a different way,” he said.