Turkish markets jumped at the start of trading on the BIST-100 benchmark index Monday morning, up 2 percent in response to the AK Party win in Sunday's municipal elections.
Markets gained strength across the board with the Turkish lira appreciating to a four-month high against the U.S. dollar at 2.15 Turkish liras to the greenback.
Last week, markets were up 10 percent in anticipation of AK Party success as polls predicted a landslide win for the AK Party in Istanbul, and a nail-biter, with the AK Party candidate also winning in the nation's capital, Ankara. Both poll predictions materialized with the Istanbul candidate winning by 8 percentage points and the current mayor of Ankara, Melih Gökçek, squeaking by with 0.8 percent of the vote.
Across the country, the AK Party improved its showing in 70 of the 81 municipalities, taking control of 49 city halls throughout the country, followed by the CHP, BDP, and MHP with 13, 10, and 8 mayoral seats, respectively.
The data from last week were also positive as real sector confidence was up 4 percent and the consumer confidence index was also up by three points. This week, trade balance numbers were released Monday morning along with GDP numbers, both of which pointed to an improvement in the trade balance (actual trade balance better by $1 billion versus survey predictions) and a 0.3 percent positive surprise in year-over-year GDP data.
Fixed income markets were up sharply with the benchmark two-year bond yield down 0.1 percent from 10.8 percent at the close on Friday to 10.69 percent at midday Monday. The more sensitive long-end ten-year bond saw yields fall from 11.4 percent to 10.27 percent in the last week, indicating a massive inflow into Turkish debt as foreign investors bet that Prime Minister Erdoğan's party would be successful in the election and after realization of this prediction, yields continued to fall as bond prices increased. The decrease in yields will make it easier for the government to sell debt to finance the massive growth projects on tap for the coming years and the retreat of political risk should push credit-default swap (CDS) numbers even lower, from their current level of 2.19 percent, which are already down sharply, 18 percent from their recent high of 2.66 percent.
On Tuesday, HSBC's Purchasing Managers Index is released along with Consumer Price Index and Producer Price Index numbers, both of which are good leading indicators of inflation. Barring major surprises in the data, the week will be tempered by digesting election data and predicting the outcome of the August presidential election. Should the AK Party accept this win as a mandate, they will continue investing in national infrastructure projects which should help employment numbers and spur growth in the broader economy.
In commenting on the election results and sharing his predictions for the near future of financial markets, noted Turkish "Bond King,"
Emrah Ahi commented: "The election results will awash Turkey's financial markets in positive sentiment. As I had predicted, foreign investors waited until the last two weeks of the election, and invested based on polling data. Some investors may take some money off of the table here, 'buy the rumor, sell the news' type selling, however the mid-term sentiment surrounding Turkish financial markets is very positive both for equities and debt. The GDP and trade balance point to a rebalancing of the economy and a 'soft landing' which should also bode well for markets."
Ahi's comments echo investors' actions early Monday as they are betting on continued improvement in the Turkish economy now that the uncertainty surrounding the municipal elections has been put to bed.