In the first dual parliamentary and presidential elections to be held in Turkey, President Recep Tayyip Erdogan won the opportunity to remain in power. The elections had been due to take place November 2019 but the president announced in late April that he was bringing them forward. In line with the constitutional changes implemented in response to the April 2017 referendum, Erdogan is now both, head of state and head of the Turkish government, meaning that he does not need parliament to form a government.
The five key parties that ran in the elections were the Justice and Development Party (AKP), The Republican People’s Party (CHP), the Nationalist Movement Party (MHP), Iyi Party (IYI), and the People’s Democratic Party (HDP).
Participation Rate Jumps
Out of the eligible 59.4 million voters (including those registered abroad) 86.7% participated which was above the participation rate seen in the last three general elections since 2011. According to the unofficial results released so far, Erdogan won the vote with 52.6% of the vote, placing him comfortably ahead of Muharrem Ince at 30.7%. Parliamentary elections however, show that the AKP have seen a decline in support to 49.4% to 42.5% at the elections held in November 2015. On the other hand, the People’s Alliance Party won 53.6% of the vote with a much better-than-expected performance from junior member MHP who won 11.1% of the vote. Nation Alliance won 34.1% of the vote, while CHP won 22.7% which was below the 25% outcome seen at the last two elections.
AKP gained 239 seats which was well below the 317 seats gained in November 2015 and the simple majority of 300. This comes despite the number of MPs rising to 600 from 550. Despite the constitutional amendments made in the 2017 referendum, controlling a parliamentary majority is still an important objective. The amendments made now allow parliament to pass over a presidential veto if it adopts the same bill with an absolute majority.
Although its not a mortal blow, without a simple parliamentary majority, the AKP is unable to control legislature without the support of MHP. Consequently, the election outcome means that AKP and President Erdogan are more dependent on MHP for law-making and parliamentary issues.
Consequences for The Market
In prior elections, victories for AKP/Erdogan have typically yielded positive market reactions and the initial reaction following the unofficial results has showed positive sentiment towards Turkish equities and the domestic currency.
However, there are some concerns for the market in the wake of these elections given Erdogan’s recent statements concerning his intentions to take more responsibility for monetary policy. In terms of gauging further price movements, the most important element will be the new management team in charge of running the economy and the policy mix. Continued loose fiscal policy should revive growth but could weigh on markets due to a combination of elevated inflation prospects and surging bond yields.
Outlook for The Economy
Bearish pressure on TRY has increased since early March due to intensifying macro weakness but also the more difficult external environment seen around global trade tensions and financial market volatility. Geopolitical risks have increased and emerging market assets have been under pressure due to rising US interest rates. Alongside this, there are also some concerns for global growth in light of increased trade tensions which have been intensifying between the US and China and the US and Europe. Consequently, the rally in TRY seen in response to Erdogan’s win is likely to be little more than a blip as the market focuses on the broader picture while trading TRY.
Although the explosive rally seen over the first quarter has come to a halt, USDTRY remains firmly bullish. For now, the next key support level will be the 38.2% retracement from last year’s lows. If this level is broken, the main level the market will be area between 3.9426 – 3.9858 which is the 61.8% retracement level and also a key structural support level. However, focus for now is firmly on further upside as dip buyers look to have emerged into this week’s lows once again.