Which election outcome will the markets like?

TURKEY - In Brief 30 Sep 2015 by Atilla Yesilada

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An esteemed reader wrote to us “Crew, What do you think would market responses be, based on your views and the views of your client base into the elections, to the different plausible electoral outcomes, especially: - AKP simple majority - Coalition with CHP - Coalition with MHP What would Cosmo do in these outcomes? Immediately and from a slower moving perspective?” Cosmo was duly dragged from His mid-day drunken slumber to help answer the questions. We are not in the habit of asking our visitors about their positions, but to the extent they do reveal such information, the biggest concern is Erdogan’s continued influence on Turkish politics and third election, hence almost any outcome that averts these possibilities will be welcome. Now, let us start with the latest Konda poll, an agency which is very accurate and unbiased: AKP: 41.7 CHP: 24.8 MHP: 16.4 HDP: 12.3 Hence the base case and most likely scenario with 80% odds is a hung parliament, but in case of a single party AKP government: The markets will rejoice briefly, but we fear that Erdogan will soon push Davutoglu aside (or a leadership struggle will develop in the party) to enact his radical agenda. In the political space, this agenda may mean an incursion into Syria to establish a safe zone between Cerablus and Mare-Azez townships, a bitter and lengthy war with PKK and a witch-hunt against free media (Dogan Holding) and even against some big corporate names (Koc and Eczacibasi are mentioned). In the economics sphere, pressure on the CBRT to keep the rates artificially low will continue, with Babacan being sideline in favor of loony-tune names like Erdogan’s son-in-law Mr. Berat Albayrak. I think this scenario ...