May 16, 2023

The Turkish economy is preparing to face “difficult” fluctuations in the value of the currency and stock prices during the next two weeks, according to economists’ expectations, as the country heads towards a run-off for the presidential elections on May 28, as the two competing candidates, President Recep Tayyip Erdogan and opposition leader Kemal Kilicdaroglu, were unable to Whoever crosses the 50 percent threshold that determines the victory of one of them in the first round.

Traders in the Turkish Stock Exchange and international economists have previously considered that the run-off is one of the worst scenarios that Turkish markets may face, as the country will enter a state of political uncertainty until one of the candidates decides the elections.

In this report, we monitor the impact of going to a second round of elections on the movement of the Turkish markets, based on the latest numbers and data after the end of the first round.

Turkish lira

The value of the Turkish lira fell to 19.70 against the dollar on Monday, before rising to 19.65, compensating for some of its losses. This is its lowest level in two months, and very close to the lowest level it recorded after the devastating earthquake last February, when it reached 19.80.

The lira has fallen by 5 percent since the beginning of the year.

Goldman Sachs (one of the most famous banking institutions in the United States and the world) said last week that the market is pricing a “sharp drop in the value of the (Turkish) currency” and its timing will be difficult to predict, according to the US “Bloomberg” agency.

Analysts at “JP Morgan Chase” (the largest bank in the United States of America) and “HSBC” (the largest bank in Europe) expected that the value of the lira would drop to about 24-25 per dollar.

Piotr Mattis, chief currency analyst at “In Touch Capital Markets” (a provider of information on financial markets at the institutional level), believes that “disguised interventions in foreign exchange will continue during the next two weeks to maintain the relative stability of the lira.”

Turkish stocks

The main index of Turkish stocks fell by 6.4 at the opening, on Monday, which caused trading to stop on the stock exchange before it compensated for some of its losses later in the day, and it is trading down 2.9 percent, according to Reuters.

The banking sector index on the Istanbul Stock Exchange fell 9.5 percent (stock indices are a tool for measuring market performance, or part of it, to know investment returns).

Granti Bank shares fell as much as 10 percent in morning trading, and Yapi Credit Bank shares fell 9.97 percent.

But other companies such as Konut Real Estate, Kardemir Steel Industry, Koza Altyn Gold Mining and Aselsan Defense were among the best performers on the main index, rising between 5.5 and 9.9 percent.

Debt insurance

Turkey’s five-year CDS spread jumped to 597 basis points, an increase of 105 basis points, the highest since November 2022, according to Reuters.

Companies around the world offer “debt bonds” to those who wish to buy, to provide the money needed for their investments, and it is at a specific value and for a specific period of time, and gives its buyer continuous periodic interest throughout the duration of the bond, and at the end of the time limit he recovers the value of the bond again.

In order to protect these bonds in the event that the company goes bankrupt before paying off its debts, a so-called “debt guarantee document” appeared, issued by a third party, through which it undertakes to pay the value of the bond and its benefits in the event that the company issuing it goes bankrupt.

This guarantee document can be purchased for a percentage of the value of the debt security, which increases or decreases according to the financial position of the issuer of the debt security (it decreases whenever the position of the issuer of the debt is good), measured by a “basis point”, which is equal to 1 in ten thousand (0.01 percent). ).

Thus, the increase in the value of debt insurance in Turkey by a certain amount is considered a negative assessment of its economic situation.

The effects extend to Iraq

The effects of the second round of the elections extended beyond the Turkish markets to reach Iraq, as Iraqi government sources and others from the oil sector said that crude oil flows from northern Iraq to the Turkish port of Ceyhan have not yet resumed, despite Baghdad’s request last week to resume it.

Turkey stopped the flows on March 25, after an arbitration decision issued by the International Chamber of Commerce obliges Ankara to pay compensation to Baghdad in the amount of $1.5 billion, for allowing the Kurdistan region of Iraq to illegally export oil from 2014 to 2018.

Three Iraqi government officials attributed the delay to the elections, and said that the Turkish company “Botaş” to operate the pipelines is still awaiting confirmation from the government, according to “Reuters”.

Iraqi Oil Minister Hayan Abdul Ghani had wanted to resume flows on Saturday at a rate of 500,000 barrels per day.

In general, experts expect that the election results will greatly affect the future of the Turkish economy, which has a value of $900 billion. The election.

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