Turkey enters period of political instability

Turkey has been thrown into political instability following an indecisive general election. The current ruling AKP party suffered a plunge in support to 41% and now is being forced to cobble a coalition together.

The failure of AKP to secure a majority led to heavy losses in the Turkish Lira and caused a stock market rout. Turkey’s stock market was down over 8% at when it opened on Monday.

The uncertainty spilled over to European stock with the DAX, FTSE and CAC all suffering losses.

AKP have 45 days to form a coalition and are currently meeting in Ankara.

President Erdogan has been humbled by the losses and in an effort to avoid destabilising protests, has accepted the results.

“Our nation’s opinion is above everything else,” Erdogan said “I believe the results, which do not give the opportunity to any party to form a single-party government, will be assessed healthily and realistically by every party.”

Turkey suffered a number of blasts prior to the election which some say were meant to disrupt the democratic process. The explosions took place at a Kurdish rally who were campaigning for 10% of the votes to gain seats in parliament. The pro-Kurdish HDP party won 12% of votes and will have around 80 seats.

The shake up to Turkey’s political environment may be the source of investor woes for some time to come.

“In emerging markets, investors particularly like certainty and strong leadership and that is something that we are now really lacking in Turkey. Turkey is one of the fragile five and is in a difficult situation economically and so uncertainty like this is really the last thing it needs. The key question now is what the central bank will do in the light of this huge depreciation in the lira. There is certainly an argument for it to hike interest rates. In terms valuations, many assets indeed look very attractive now, especially as valuations have taken a beating. There will be a lot of investors picking through various companies trying to look for cheap opportunities” said David Stubbs, market strategist at JP Morgan Asset Management.

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