Turkish assets rallied on Monday, with the lira on track for its biggest one-day gain in seven years and stocks up 5 percent after an election that returned the country to single-party rule, ending months of investor uncertainty.
The AK Party, founded by President Tayyip Erdogan, took just shy of 50 percent of Sunday’s national vote, giving it a clear majority of around 316 seats in the 550-seat parliament and a far higher margin of victory than even party insiders had expected.
The result offers a reprieve from the uncertainty that has plagued Turkey’s markets since the AKP lost its single-party majority in a previous election in June – though in the longer term it may raise concerns by widening the country’s political divisions.
“The markets are focused on one thing and one thing alone, and that’s stability. From a markets standpoint – particularly given the fact that the markets were expecting something significantly worse – this is a positive,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy.
However, that impression was deceptive. “This is inevitably going to raise fears about an even more authoritarian, an even more economically populist, nationalistic Turkey,” he said.
At 0800 GMT, the lira had firmed more than 3 percent against the dollar to 2.8170, from 2.9135 on Friday, putting it on track for its biggest one-day gain since November 2008.
The BIST 100 share index, the broadest measure of Istanbul stock performance, surged nearly 5 percent, its highest level since July and its biggest one-day jump in two years.
So far this year political concerns have led Istanbul assets to lag far behind their emerging market peers, with the lira having fallen around 20 percent.
Inan Demir, chief economist at Finansbank, suggested the result might embolden the AKP and especially Erdogan to extend the uncompromising policies that have already divided the country.
Demir said in a note that could include: “insistence on executive presidency, unrelenting pressure on opposing business and media groups, aggressive foreign policy, hardliner stance regarding the Kurdish issue and obsessive calls for lower interest rates”.
Sunday’s election was called after the AKP failed to find a junior coalition partner following the June vote. Erdogan’s critics said it was a gamble by the combative leader to win back enough support so the party can eventually change the constitution and give him greater presidential powers.
In an attempt to win back nationalist support, the AKP government cracked down in recent months on Kurdish militants, putting an end to a 2-1/2-year ceasefire and sparking almost daily violence in the largely Kurdish southeast.
Erdogan has also cracked down on opposition media groups and companies linked to a prominent political ally-turned-foe, U.S.-based Islamic cleric Fethullah Gulen.
Highlighting worries about further such action, shares in Dogan Holding – whose media affiliates are the subject of an investigation by prosecutors – tumbled nearly 10 percent.
Shares in mining company Koza Ipek and sister firm Koza Metal also fell sharply. The owner of both companies is close to Gulen and the firms have been under investigation for accusations of terrorism.