Political Turbulence Remains Key Downside Risk


BMI View: The online publication of phone conversations purported to depict Turkish Prime Minister Recep Tayyip Erdogan instructing his son to hide millions of euros in cash is a sign of escalating political infighting in Turkey. Erdogan has dismissed calls for his resignation and will instead step up efforts to marginalise his political enemies in both the public and private sector ahead of elections in 2015 , posing key downside risks to both short-term equity investment and longer-term foreign direct investment.

On February 25, Turkish Prime Minister Recep Tayyip Erdogan publicly dismissed calls for his resignation following the online publication of voice recordings that are purported to depict him instructing his son to hide millions of euros in cash in December 2013, after a far-reaching corruption probe against close allies of Erdogan was made public. In response to the allegations, the Borsa Istanbul equity index opened nearly 3% down. Erdogan claimed that the recordings are fabricated and signalled his intention to prosecute those responsible, and we now expect him to double down on efforts to marginalise his political enemies, implying an environment of elevated political risk and vast policy uncertainty that will continue to pose significant downside risk for Turkish equities until general elections in 2015.

Despite a period of relative calm in which Erdogan appeared to gain the upper hand in a power struggle between his ruling Justice and Development Party (AKP) and the influential Hizmet Movement ( see 'Erdogan Gains Upper Hand At Great Cost', January 24 ), recent events highlight that political infighting will remain a key characteristic of the Turkish political landscape until 2015, increasing the risk profile of short-term investments. We do not believe we have seen the last of strategic moves by either side to weaken their opposition, implying downside risk to all Turkish asset classes.

Politics Dragging Down Equities
Turkey - Borsa Istanbul Equity Index

or Register now for free to read the full article

This article is tagged to:
Sector: Country Risk
Geography: Turkey

Related products in our Store...

Check out our most popular reports below or view more in our store