The Turkish electorate had its say in choosing the president of the Republic for the first time in its history on Sunday with Prime Minister Recep Tayyip Erdoğan pulling off a decisive win. Although President- elect Erdoğan has become the first president to win a popular vote, several prime ministers have gone on to become president.
Turkish financial markets rallied in the weeks leading up to Erdoğan's decisive win and as predicted, markets saw slight profit-taking with both debt and equity markets trading flat in a holding pattern. Erdoğan's primary success has been liberalizing the economy and allowing for the private sector to take over many sectors whıch are already privatized in most Western democracies, in order to increase the efficiency of operations in these sectors.
President-elect Erdoğan's win was an unprecedented one as the prime minister won nearly 70 percent of all voting districts in the country, giving him a wide-ranging mandate to continue the work he begun under his leadership of the AK Party. To put this into perspective, Erdoğan garnered a higher percentage of the popular vote, 52 percent, than eight of the last 10 U.S. presidents in their first term.
The benchmark BIST-100 equity index was up at the opening of business on Monday and turned lower as investors took some money off the table, realizing returns. Markets will most likely consolidate here and appear to be poised to retrace previous highs in the coming weeks as election data is further analyzed. It has been typical for investors to place bets in the two weeks leading up to an election, pushing markets higher. Markets sold-off during the last10 days before the election took place, as an Erdoğan-win was a near foregone conclusion where those that had"bought into the rumor" went on to "sell the news" as the rumors materialized.
The benchmark two-year bond is trading near flat, down slightly as its yield is trading at 9.16 percent, up 18 basis points from a week ago, where it had traded at the 8.88 level. The long-end 10-year bond also traded down slightly, with its yield up only 4 basis points from its previous level of 9.19 where it traded a week ago. The Turkish lira was also down slightly against the U.S. dollar for the week, trading at 2.14 liras against the greenback, down .01 lira. The current turmoil in the region caused a rush to the "safe haven" of the dollar as the U.S. began airstrikes against ISIS fighters en route to Irbil, the capital of the Kurdistan Regional Government. The lira gained strength against the dollar today, however, Erdoğan's election was applauded by currency markets, which brought the lira back up to 2.14, up 0.015 since the airstrikes began on Friday. President Obama signaled military activity in Iraq would continue indefinitely while U.S. interests were at risk as ISIS continued their domination of central Iraq. Although Obama signaled there would be no "boots on the ground" he left all other options open to combat ISIS.
On Sunday there were reports of a coup in Baghdad with some Iraqi military brigades taking positions against those loyal to Prime Minister Nouri al- Maliki. Maliki has signaled his intent to run for a third-term, however, the United States has implied it would like to see a more unifying politician take the top spot in the capital. President-elect Erdoğan was introduced to a crowd of well-wishers on Sunday at his victory speech by the president of Kyrgyzstan, signaling Turkey would turn east to rebuild historic and economic ties with Turkic nations, desperate for leadership in a time of economic and political uncertainty. If President-elect Erdoğan accomplishes what former President Turgut Özal attempted during his tenure, Turkey may reap the rewards of improved relations as Europe continues to lose its footing financially.
On Friday the Central Bank of the Republic of Turkey will release unemployment data with consensus estimates predicting a slight drop in unemployment to 8.9 percent. Markets will turn now to the appointment of the next prime minister, taking President-elect Erdoğan's place, which should take place sometime in the next two weeks. Should the choice be market-friendly such as Ahmet Davutoğlu, markets will continue to rally through to the end of the year.