Turkey: Positive market reaction to election result

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Experts expect decisive victory of Justice and Development (AK) Party to focus on reforms aimed at fighting major economic problems

By Gokhan Kurtaran

ANKARA  – The victory of the Justice and Development (AK) Party in Turkey’s parliamentary elections on Sunday is expected to provide a window of opportunity for structural reforms intended to boost growth, economists said on Tuesday.

The Justice and Development (AK) Party won a landslide victory, securing over 49 percent of the vote after the June election saw no party win a majority and almost five months of subsequent talks between parties failed to produce a coalition.

Timothy Ash, emerging market economist from Nomura said, “It’s an incredible result, no one really expected this.”

However, Ash pointed out that the new government will face long-term challenges to improve economic conditions.

“The government faces issues like rebalancing the current account, inflation, and shape of the new policy team in the government,” Ash said.

FX & Fixed Income Strategist Manik Narain from UBS said: ”The market had a very positive response to the election result, the market interprets this as a return to stability.”

“The government now has time to focus on structural reforms which had been delayed due to poitical uncertainty over the last 5 months after June election which saw no single party winning a majority to form a government.”

Referring to the next credit rating review by Moody’s scheduled for Dec. 4, Narain ruled out a downgrade. He said that many investors see Turkey as an investment target. 

“I think most investors expect Moody’s to keep Turkey’s investment-grade rating,” Narain said.

For William Jackson, senior Emerging Markets economist at Capital Economics, the key for investors to watch for is for the government to regain the political credibility it had during 2000’s, when it achieved an impressive track record.” 

“It’s possible that the government reinvigorate the reform agenda. The government doesn’t need to now worry about upcoming elections, it will be perhaps be able to concentrate on reforms.”

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