(News Bulletin 247) – The outgoing president defeated the opposition leader. Although its economic policy is hardly appreciated by experts and foreign investors, the Istanbul market is gaining ground.

Recep Tayyip Erodgan returns. The Turkish president, in power for 20 years, won the Turkish presidential election on Sunday, against his opponent Kemal Kiliçdaroglu, with just over 52% of the vote.

This Monday, the Istanbul Stock Exchange, is currently gaining 4% around 2 p.m. It should be noted, however, that on May 15, when the result of the first round was announced, it had lost more than 6%. On this date, Erdogan had clearly appeared in the lead in the first round, which augured for his probable victory in the second. This then constituted a disappointment for the markets.

Because in the opinion of several experts, the very unconventional economic policy pursued by the Turkish president is not very popular with foreign investors, who have fled Turkish assets in recent years. According to Bloomberg, their holdings of Turkish stocks and bonds have shrunk by 85%, or $130 billion, since 2013.

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Growth at all costs

Remember that the Turkish president pleaded for low key rates in the face of galloping inflation, an economic policy that runs counter to those of most other countries, thus emphasizing growth at all costs to the detriment of other macroeconomic objectives.

“An Erdogan victory brings no comfort to foreign investors,” Hasnain Malik, a strategist at Tellimer in Dubai, told Bloomberg. “With very high inflation, very low interest rates and no net foreign reserves, a painful crisis affecting all assets could be looming,” he adds.

“A victory for Erdogan means new years of monetary policy experimentation with total disregard for the consequences,” Oanda’s Craig Erlam said on Friday.

Many observers also consider that Erdogan’s victory means that the Turkish lira should continue to fall against the dollar. For the time being, this Monday, the dollar takes “only” 0.6% against the local currency, at 20.0852 Turkish liras, a variation normally quite substantial on the currency market.

Towards a plunge in the Turkish lira?

But the pound, as explained in a previous article, benefits from support measures from the Turkish central bank whose political independence is, at best, questionable.

Capital Economics, in a note published on Friday, estimated that the currency should plunge in the coming months with the re-election of Erodgan, expecting a dollar at 26 Turkish liras by the end of the year.

“The Turkish lira has been heavily managed by policy makers over the past year and we believe it needs to weaken significantly in order to bring the Turkish economy back into balance,” the think tank said. “The measures to defend the currency appear unsustainable and, despite efforts by politicians to ensure stability ahead of the elections, the pace of lira depreciation has accelerated in recent weeks,” he adds. .

Quoted by CNBC, Wells Fargo for its part expects a dollar at 23 Turkish liras by the end of this second quarter.

According to Bloomberg, Recep Tayyip Erdogan has however promised to appoint a new economic team which would have “international credibility”, starting this Friday.

Note in passing that the Istanbul Stock Exchange, although it has lost 13.6% since the start of the year, is still up 88% over one year, thanks to a stratospheric year 2022 (more than 100% in dollars, and around 190 % in local currency. This is explained “in large part by the increase in flows from local investors looking for a hedge against inflation”, underlines Capital Economics. “But we doubt that this strong performance continues”, adds the think tank.