Lira, Stocks Fall as Erdogan is in Pole Position to Win Turkey’s Election

Turkey’s lira and stocks fell on Monday as the presidential election appeared headed for a runoff with incumbent president Tayyip Erdogan in the lead.

The lira fell near a two-month low, and the cost of insuring exposure to the country’s debt spiked.

Turkish stocks also fell, with the main banking index slumping by more than 9%.

The lira was at 19.66 to the dollar at 1034 GMT, after reaching 19.70 in earlier trading, its weakest since a record low of 19.80 hit in March this year following deadly earthquakes.

The Istanbul bourse was trading more than 2% lower after an earlier 6.38% drop triggered a market-wide circuit breaker.

The uncertainty has investors in Turkish government bonds worrying about the country’s ability to pay them back.

The cost of buying insurance against the risk of default by the government — known as a credit default swap — surged 22% in morning trade to its highest level since November, according to data from S&P Global Market Intelligence.

Market analysts on prospect of Erdogan’s victory in the runoff election

“An opposition victory looks to have become less likely and this will disappoint investors hoping for a return to orthodox economic policymaking and a more credible commitment to tackling Turkey’s inflation problem,” Liam Peach, senior emerging markets economist at Capital Economics, said per CNN.

Erdogan, who has been at the helm of Turkey’s government for two decades, led his opposition rival Kemal Kilicdaroglu with 49.4% of votes to Kilicdaroglu’s 44.96%, with 99% of ballot boxes in Sunday’s first round election counted, according to the High Election Board chairman.

It put the two on track for a May 28 runoff with Erdogan as the frontrunner for another five years in power.

“This is a major disappointment to investors hoping for a win for opposition candidate Kilicdaroglu and the reversion to the orthodox economic policy he promised,” said Hasnain Malik, head of equity research at Tellimer, according to Reuters.

Credit rating agency Moody’s said Monday that a victory for the opposition would “improve prospects for a return to orthodox economic policies which — if effectively implemented — would be positive for the sovereign’s credit profile over the longer term.”

Still, “unwinding the distortionary measures put in place over the past two years will be challenging,” Moody’s said, adding that the risk of volatility in Turkey’s economy and markets was “significant.”

For months, Turkey’s disparate opposition parties had pooled their resources in a bid to bring an end to a president who has extended his power dramatically since a failed coup against him in 2016.

And Turks went out to vote in very high numbers. Officials put the turnout at 88.8%.

The election is being watched very closely in the West, because Kilicdaroglu has promised to revive Turkish democracy as well as relations with its NATO allies.

On the other hand, President Erdogan‘s Islamist-rooted government has accused the West of plotting to bring him down, and Turkey’s candidacy for the EU has long been on ice.