International investors watch closely as Erdogan suggests election date as May 14
Even the hint of an opposition victory could lead to a sharp rebound in Turkish assets, but President Tayyip Erdogan's drastic reshaping of the economy and financial markets means such a change would bring its own uncertainties, financial managers told Reuters ahead of the upcoming elections, which Erdogan suggested to be held on May 14, in his parliamentary adress on Wednesday.
International investors, many of whom have pulled out of Turkey over the past five years because of recurring market turmoil and Ankara's unorthodox economic policies, are watching events closely as the election marks a fork in the road for Turks beset by an inflation-driven cost-of-living crisis that is just easing, Reuters said.
Blaise Antin, head of EM sovereign research at asset manager TCW in Los Angeles, said an immediate "quick end to currency appreciation is unlikely" even if Erdogan loses.
Only in the medium term could markets trend upward in a sustainable way, given the need to correct the overvalued currency and bring interest rates to "much higher levels," he said.
Opinion polls suggest Erdogan could retain the presidency while his Islamist-leaning party AK loses control of parliament.
That would be the "worst case scenario," Antin said, and would lead to short-term political uncertainty and market volatility.
To offset voter tensions, Ankara has made record social spending of about 1.4% of the annual budget, including energy subsidies, doubling the minimum wage and allowing more than 2 million Turks to retire immediately.
"Erdogan is offering one aid package after another," which will put "significant pressure on the public coffers," said Galip Dalay, associate fellow at Chatham House in London. "But if he loses the election, that's someone else's problem."
Turkey still has much lower debt than most other countries, but years of depleting foreign reserves, undermining the independence of the central bank and judicial system, and unorthodoxy in general have left their mark.
Moody's and Fitch credit ratings have dropped from investment grade in 2016 to "junk" - on par with Bolivia and Cameroon.
"The policies just do not look sustainable," said Fitch's Paul Gamble.