Fund managers investing in Turkey braced for further volatility in the wake of an election that lost president Recep Erdogan’s ruling Justice and Development Party (AKP) its parliamentary majority.
“Today’s election news is bad in the short term, but better in the long term,” says Salman Ahmed, global bond strategist for Swiss private bank Lombard Odier.
Polls had suggested the AKP would not get the 330 seats it needed to change the constitution and establish Erdogan as an executive president. But the AKP’s failure even to get a majority threshold was a shock to the markets and focused investors’ attention on the question of political stability, says Ahmed.
“Remember, Turkey is heavily indebted and has big external sector borrowing needs,” he says. “This means any economic or political shock has an exaggerated impact on the Turkish lira.”
Erdinç Benli, co-head of the global emerging markets team at GAM, says the election will create short-term volatility as investors monitor what may be a fraught process of coalition building. However, the current environment may represent a good buying opportunity.
“Looking at Turkish equities, valuations are now on an attractive level, having already been trading at the highest discount for the last five years. However, the current situation should not be taken as an invitation for indiscriminate investment. Careful stock selection remains key.”
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