(25 JUNE 2018)DAILY MARKET BRIEF 2:Erdogan to govern Turkey for a second term

(25 JUNE 2018)DAILY MARKET BRIEF 2:Erdogan to govern Turkey for a second term

25 June 2018, 14:34
Jiming Huang

Turkish elections of Sunday closed as widely expected with a majority of 53% for President Tayyip Erdogan AK party, out of a 99% counting. Erdogan’s main opponent, Muharram Ince from Republican People’s Party gained 31% of the votes, remaining the second largest political party of the country.

Counting in total five political parties in the parliament (threshold of 10% electoral votes reached), the possible collusion among parliamentary members seems reasonable at first sight, but the situation is rather divergent. Indeed, since the constitutional reform in April 2017, which reinforces the power of the leading president (Prime Minister seat abolition, immediate appointment right for top officials positions, right of intervention on legal system and state of emergency enforcement power) and further support of its allies from Nationalist Movement Party in the parliament, Erdogan’s “People’s Alliance” is projected to win 342 seats out of 600 in the parliament, thus giving a rather weak power to existing opposition.

Following the news, the lira, which depreciated by -21% against the dollar since the beginning of the year is currently strengthening. USD/TRY is valued at 4.5942, trading lower since 4.7456 high (22/06/22018 high) and approaching the 4.5839 range in the short-term. Our scenario remains however a stronger USD/TRY due to current events in the mid-term. We think that recent lira rally is unsustainable, as the situation should lead the leading party to take unilateral actions (politically and economically), without consulting diverging opinions from opposition and which could have negative consequences on both the domestic economy and its relationship with commercial partners.

By Vincent Mivelaz

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