VOTE: Turkey votes for a new President and parliament this Sunday, May 14. The Presidential winner needs 50% of the vote to avoid a May 28 run off. It’s likely the most important world election this year, ahead of Argentina or Poland, and is a nail biter, according to polls. President Erdogan and AK Party been in power for twenty years and face Kemal Kilicdaroglu. He leads a united opposition that has pledged to restore Central Bank independence, reverse unorthodox economic policies, and improve US relations. Turkey has suffered from a weak economy and Lira, and worsened by February’s tragic earthquake. The currency is the investment focus, down 80% vs the dollar the past five years, and with market pricing dramatic weakness ahead.
CURRENCY: Turkey’s $1 trillion GDP makes it a top-20 global economy and its currency market trading similar volumes to Israeli Shekel (ILS) or Hungarian Forint (HUF). The Lira has plunged 80% vs the US dollar the past five years (see chart), and forward markets are braced for more weakness ahead. Valuations now seem attractive. The central bank has used macro prudential measures to manage the FX given 45% inflation, interest rates cut to low 8.5%, and twin current account and fiscal deficits. A post-election return to orthodoxy may see an initial USD/TRY rally.
STOCKS: Turkish equity exposure for foreign investors is very limited. The local stock market has fallen to represent only 0.6% of broad emerging market equities (EEM). Whilst foreign listed stocks have little local exposure these days. Spain’s BBVA (BBVA.MC) owns 49% of top-3 bank Garanti that represents c15% of its profits. Tourism is over 10% Turkey’s GDP but only c1% the global businesses for biggest local hotel and airline players like Hilton (HLT) and Wizz (WIZZ.L). Neighboring Greece could see some impacts, from Star Bulk (SBLK) to TOP Ships (TOPS).
All data, figures & charts are valid as of 10/05/2023