“Optimistic Atmosphere Dominates the Market for Post-Election Period” Provided Current Economic Policies Are Maintained

As local elections draw near, domestic markets are becoming active. Experts evaluating the economy state that local elections will not have a direct impact on the market. Experts who do not expect a rapid increase in the dollar with the preservation of current economic policies also make optimistic statements about inflation and the stock market. Fitch’s credit rating upgrade before the election also supports the positive sentiment.

While the Istanbul Stock Exchange gained 36% throughout 2023, failing to protect investors against inflation, it achieved gains of over 80% in a rally that began after the general elections and continued until September. The USD/TRY exchange rate, on the other hand, surged significantly from the conclusion of the presidential election on May 28, 2023, until mid-July, trading at a premium of 35%; it continued its gradual increase thereafter. The dollar gained 58% against the Turkish lira throughout 2023.

Following a roughly four-month downtrend in the stock market, an upward trend emerged from the beginning of January, with the BIST100 index reaching its all-time high of 9450 points on February 26. On the USD/TRY front, the recent increase in demand for the dollar due to expectations of rapid appreciation after the election intensified, pushing the monthly average premium rate from the 2s to the 3.5s. Furthermore, last Tuesday, the gap between the interbank market and the Grand Bazaar widened to around 5% due to the shift in public demand for foreign currency from digital to physical dollars. The gap later narrowed to 2%; however, this event brought to mind the gap in exchange rates that reached up to 10% during the 2023 general election cycle.

All Eyes on Post-Election Economic Policies

The local elections to be held at the end of March differ from previous local elections in terms of the developments to be monitored regarding whether there will be any changes in monetary policy and the new economic management implemented following the 2023 general elections. Experts emphasize that there may be volatility in the markets if there is any difference in tight monetary policy and/or economic management. Additionally, it is anticipated that foreign investors will closely monitor the post-election roadmap; if the current policies continue, it is expected that foreign inflows into the country may accelerate.

On the other hand, Minister of Treasury and Finance Mehmet Şimşek stated last week that they did not expect a real depreciation in the exchange rate and said, “Expectations of depreciation of the TL after the election do not seem very meaningful to me.” Last Friday, the international credit rating agency Fitch upgraded Turkey’s credit rating for the first time in 12 years. Turkey’s credit rating was raised to “B+” while the outlook was upgraded to “positive.” It is argued that this decision by Fitch will also support a positive sentiment in Turkish markets.

Market experts state in evaluations made to the ECONOMY that local elections will not have a direct impact on the market. They emphasize that if current economic policies are maintained after the election, the dollar will not rise rapidly, inflation will begin to decline due to base effects, and the stock market will become more attractive for investors.

Istanbul election result is extremely important
(Deputy General Manager of Infor Investment Mert Yılmaz)

“Although it is a local election, I think the Istanbul election result is extremely important. The concern here is this: If Murat Kurum loses the election, ‘Will the current policy continue, and will those who implement this policy remain in office?’ This uncertainty seems to have put both domestic and foreign investors in a wait-and-see mode. 9400-9450 was an important resistance level. The stock market reached this level and a correction movement that can be considered reasonable started. There is an effort to hold on to 8800 points initially. If selling pressure continues, we may see a retracement to the levels of 8450-8500. On the other hand, especially in recent days, an increase in demand for foreign currency by individual investors is observed. It is said that the Central Bank wants banks to widen the spread between buying and selling rates. The scenes seen in the Grand Bazaar also support this. In summary, I do not expect a sharp movement in either the foreign exchange or the stock market. However, if there is an expectation that this team and policies will continue after the election and the markets are convinced, I believe that foreign interest may re-emerge and it will be in favor of the stock market,” he said.

My post-election stock market view is quite positive
(Murat Özsoy, Founder of Biz Financial Advisory)

“I do not expect a rapid rise, but it is necessary to keep in mind that we will enter a period where risks will increase gradually. There is an increase in the speed of depreciation of the TL against the dollar in 2024 compared to the end of 2023. If this increase continues at the current monthly rate, we will likely enter the election with an exchange rate around 32.20 TL. Immediately afterwards, I do not expect a faster loss in the TL. My year-end exchange rate expectation is around 42 TL under current conditions. My views on the stock market are quite positive. Starting from after the election, there will be a significant decrease in inflation due to the base effect until September, especially. I think this will not require additional tightening in monetary policy and will benefit the stock market. Not in terms of being an alternative to inflation, but in terms of preventing loss in company values ​​with a policy rate hike. Even if inflation continues as it is, finding instruments other than stocks and investment funds is very difficult,” he said.

(excerpt from an article in Turkish, on EKONOMIM.com)