Industry Updates

Turkey ETFs plunge on election uncertainty

Incumbent President Erdogan performed better than expected in the first round

Sumit Roy

Turkey-s Erdogan

Turkey ETFs tumbled 8% on Monday after no candidate in Turkey’s presidential election secured enough votes in the first round to claim an outright victory.

Europe's largest ETF, the iShares MSCI Turkey UCITS ETF (ITKY), finished trading 7.9% down after incumbent President Recep Tayyip Erdogan had 49.5% of the vote after the first round, short of the 50% needed to win. Opposition candidate Kemal Kılıcdaroglu took 44.9% of the vote while Sinan Ogan took 5.2%.

There will now be a runoff election on 28 May that pits Erdogan against Kılıcdaroglu in a head-to-head battle that will determine whether Turkey’s current unorthodox economic policies continue to remain in place.

Ahead of the first round of the elections on Sunday, polls suggested that Kılıcdaroglu – a consensus candidate supported by many different factions opposed to Erdogan – had a decent shot at unseating the incumbent given the poor state of the Turkish economy.

TUR soared 9.4% on Thursday as investors speculated that Kılıcdaroglu could win.

But after the results of the first round, Erdogan appears favourite, which dampens some investors’ enthusiasm for Turkish stocks.

Unorthodox economic policies

If Erdogan remains in power, he will likely push to keep interest rates down, a policy that sent inflation to as high as 85% in October. 

The incumbent has consolidated power over the two decades that he’s been at the helm of Turkey’s government, and he has strong sway over the country’s economic policies—including its monetary policies.  

The country’s central bank has been headed by an Erdogan loyalist since 2021 after the president fired the last three governors in quick succession.  

The Central Bank of Turkey cut rates from 19% in late 2021 to 8.5% this year in the face of soaring inflation – a move that flew in the face of economic orthodoxy and was the polar opposite of what other central banks around the world have done to rein in inflation. 

If Erdogan wins another term, such unorthodox policies are likely to continue. On the other hand, opposition candidate Kılıcdaroglu has promised a return to economic orthodoxy if he wins.

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