A rally in Turkish banking stocks ahead of an election on Sunday is the best they’ve had since President Recep Tayyip Erdogan’s party rose to power over 20 years ago.
(Bloomberg) — A rally in Turkish banking stocks ahead of an election on Sunday is the best they’ve had since President Recep Tayyip Erdogan’s party rose to power over 20 years ago.
The Borsa Istanbul Banks Index is up 27% this week so far, its best performance since November 2002, when Erdogan’s Ak Party won that year’s election and spurred a 44% weekly surge in banking stocks. In this week’s move, Turkiye Is Bankasi AS, which is partly owned by the main opposition party CHP, led with a gain of 35%.
If the opposition wins, it’s “expected to end Turkey’s ultra-loose monetary policy, halt FX intervention and readjust interest rates significantly higher to restore an understandable and orthodox monetary policy,” Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, said by email on Friday. “Turkish equities would jump, not because investors are happy with higher rates, but because the valuation of the companies should also readjust to a new exchange rate.”
In other corners of the market, the cost of insuring Turkish debt against default dropped 75bps this week to 477, the lowest level since Dec. 2021 on the last trading day before the vote. Turkey’s 2047 dollar bond rose 5 cents in the week to 75, the highest in more than a year. The lira was trading 0.2% lower at 19.6143 per dollar as of 12:15 p.m. in Istanbul, and the currency’s overnight implied volatility surged to the highest since January 2022.
The rally in Turkish assets accelerated on Thursday after presidential contender Muharrem Ince dropped out the race. While it’s difficult to predict which candidate Ince’s supporters might ultimately back instead, investors have been beeting that his withdrawal increases the likelihood of an Erdogan defeat because it leaves the opposition vote less divided.
READ MORE: Turkey Markets Rally as Candidate Withdraws Days Before Vote
Overseas investors put $14 million into the New York-traded iShares MSCI Turkey ETF this week through Thursday, the biggest weekly inflow since Dec. 2021.
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