(Bloomberg) -- The lira jumped and stocks rose after the Turkish opposition candidate secured a landslide victory in a rerun of mayoral elections in Istanbul, putting an end to months of uncertainty that had weighed on the currency.
The currency climbed as much as 1.8% against the dollar, the most in the world, bringing the dollar-lira pair closer to its 100-day moving average, a level it hasn’t closed below since late March. The main equity guage added more than 2% at the open.
“Perhaps this retracement in USD/TRY may extend to around 5.50 if the external backdrop is favorable for risky assets,” said Piotr Matys, a strategist at Rabobank in London. Still, “President Erdogan and his AKP remain at the helm and their policies -- or lack of them -- will drive the market” over the longer-term, he said.
Opposition candidate Ekrem Imamoglu won the redo of the Istanbul mayor’s race by a landslide, which suggests President Recep Tayyip Erdogan’s AK Party won’t challenge the result again. The original vote in March had been overturned after the ruling AK Party narrowly lost, fueling concerns that Turkey’s democratic foundations were fraying and spurring a drop in the lira.
While the market is rightly welcoming the fact the results of this election won’t be contested, investors will be looking for answers for what comes next, said Inan Demir, an economist at Nomura Plc in London. “Will there be more populism? Will there be a cabinet reshuffle? Will there be increased nationalist influence?”
One-month risk reversals on the dollar-lira pair, the premium traders pay for options to sell the local currency over those to buy, fell the most in two weeks on a closing basis.
No Early Election
The leader of Erdogan’s key governing ally, Devlet Bahceli of the nationalist MHP, dismissed the prospect of an early national election, helping to remove another element of uncertainty for some traders.
Investors are eager to see authorities press on with mending the beleaguered economy, which is at risk of a double-dip recession. The lira, which traded 1.6% higher at 5.7278 per dollar as of 10:38 a.m. in Istanbul, has lost over 7% of its value this year, the worst performer in emerging markets after the Argentine peso.
The Borsa Istanbul 100 Index, among the cheapest in developing nations, has added 5.2% in 2019.
While President Recep Tayyip Erdogan has accepted the outcome of Sunday’s election, he has hinted the new mayor could run into legal problems.
“The knee-jerk reaction was to buy the lira, but we expect rising political tensions ahead and so remain skeptical of this recent rally,” according to Win Thin, the New York-based head of currency strategy at Brown Brothers Harriman & Co.
