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Turkey’s markets fell on Monday as investors braced for a presidential election rerun. In the first round of voting, neither the country’s long-serving leader, Recep Tayyip Erdogan, nor his opponent, Kemal Kilicdaroglu, were able to win outright.
The benchmark stock index, the BIST 100, fell as high as 6.7% in early trade, prompting a market-wide circuit breaker, before recouping part of the losses later in the day. The index was down 4.5% as of 14:10 GMT. XBANK, the country’s largest banking index, also plummeted by more than 9%.
As of around 10:30 GMT, the Turkish lira was trading near a two-month low of 19.66 to the dollar. It had fallen to 19.70 at one point, its lowest level since a record low of 19.80 in March following the catastrophic earthquakes. Bloomberg claimed, citing sources, that state lenders were forced to intervene to limit losses.
The yield on Turkey’s 2037 dollar-denominated national bond increased 71 basis points before recovering some of the losses. Five-year credit default swaps, which indicate the cost of purchasing insurance against the risk of government default, rose 22% in early trade, reaching their highest level since November, according to S&P Global Market Intelligence data.
Erdogan has been in power in Turkey for 20 years, making him the country’s longest-serving leader. However, many observers foresee a victory for opposition candidate Kilicdaroglu, who has promised a return to more traditional economic policies, amid concerns about his recent unorthodox economic decisions, which have caused inflation to rise and the currency to plummet.
With 99% of ballots counted in Sunday’s election, Erdogan leads Kilicdaroglu by a margin of 49.4% to 44.96%, according to the country’s electoral chief Ahmet Yener. The two will now face off in a runoff election on May 28. Experts believe Erdogan’s outstanding performance in the first round indicates his capacity to win the runoff.
“This is a major disappointment for investors hoping for a victory for opposition candidate Kilicdaroglu and the promised return to orthodox economic policy.” “The next two weeks will be fraught with uncertainty,” Hasnain Malik, a strategist at Tellimer in Dubai, told Reuters.