Lira rallies as opposition bags landslide victory in Istanbul

The Turkish lira rallied as the market responded positively to the landslide victory in a rerun of mayoral elections in Istanbul. (AFP pic)

ISTANBUL: The lira jumped after the Turkish opposition candidate secured a landslide victory in a rerun of mayoral elections in Istanbul, putting an end to months of political uncertainty that had weighed on the currency.

The original vote in March had been overturned after the ruling AK Party narrowly lost, fueling concerns that Turkey’s democratic foundations were fraying while giving way to political campaigning that shifted the focus away from economic reforms. The currency climbed 0.8% to 5.7722 per dollar as of 10.37am in Singapore after rising as much as 1.5% earlier.

The size of the victory – the CHP party’s Ekrem Imamoglu had a 9 percentage point lead over former Prime Minister Binali Yildirim – suggests President Recep Tayyip Erdogan’s AK Party won’t challenge the result again. Yildirim conceded the election in a televised speech in Istanbul, while Erdogan congratulated Imamoglu via Twitter.

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“The fact that the ruling party accepted the outcome of the election is welcomed by the market as it removes the uncertainties since the last election,” said Hironori Sannami, an emerging-market currency trader at Mizuho Bank Ltd. in Tokyo. “As investors buy high-yielding emerging-market assets in general, the Turkish lira will also probably enjoy such general sentiment.”

The leader of Erdogan’s key governing ally, Devlet Bahceli of the nationalist MHP, dismissed the prospect of an early national election, helping to remove another element of uncertainty for some investors. Still, attention will quickly turn to Erdogan for clues over the direction of policy. Last week, he hinted that legal troubles could await the opposition candidate.

“The market is rightly welcoming the elimination of this risk,” but beyond the initial reaction, investors will be looking for answers, said Inan Demir, an economist at Nomura Holdings Inc. in London. “Will there be more populism? Will there be a cabinet reshuffle? Will there be increased nationalist influence?”

The lira has lost over 8% of its value against the dollar this year, the worst performer in emerging markets after the Argentine peso. Investors are eager to see authorities press on with mending the beleaguered economy, which is at risk of a double-dip recession.