The local election results were interpreted all over the world as AKP's undisputed victory and it has been celebrated as the end of the political instability in Turkey. Actually the results contain very worrying regional defeats and pessimistic trends.
Now let's look a little further. What will happen if the general elections of 2015 result in this way? Some simulations have been performed and accordingly, the number of the seats of AKP falls from 326 to 290 and the possibility of changing the constitution ends forever.
Should this election be compared with the previous local elections or with the referendum on the constitution or with the last general elections? If Erdogan says "this election is a referendum for me", then it is. Let's take a look at the votes AKP received during the constitutional referendum and the general elections:
Constitutional referendum of 2010: %58
General elections of 2011: 50%
Local elections of 2014: 45.5%
These results cause much concern for there is a long term trend. AKP loses the title of "everyone's party" and is pushed back to the conservative-Islamist base. A "yes" or "no" vote is given in the referendums. Erdogan has lost this referendum by a wide margin. This nation said clearly NO to his political style and to his wish of acquittal from corruption through the polls.
BDP has become the first party in some parts of the East and in all the Southeast. The claim that AKP was representing the Kurds disappeared with this election. The Kurds will seek heavy concessions in order to resume the peace process. The statement that the tapes circulated by the Cemaat did not weaken AKP's image is a plain lie. The 15%-16% performance of the MHP shows that a portion of the conservative votes went to this party. The MHP and the BDP-HDP which have been very successful in this election represent two opposite ends. In what kind of a compromise will this polarization result? If the Kurdish demands are not met before the presidential elections, will they take to the streets again?
Can Erdogan be elected as the next president following these results? He will definitely be a candidate but he will also not entrust the party to Abdullah Gul. AKP will go to the elections of 2015 with a weak leader. But Erdogan has more than 60% chances of winning the presidential election. The equation looks something like this:
The four parties will enter to the race with their own candidate. In the second round, the candidates of AKP and CHP will compete because the said parties will receive the most of the votes. The voters of MHP and BDP will start to look for a new leader. But the MHP votes will not go to Erdogan because he is making a grave mistake by disdaining the opposition leaders. As a result, the votes of MHP will go to CHP and Erdogan will need BDP's votes in order to win. One can wonder what BDP will request from Erdogan in exchange of its support.
These results may look like a victory to the AKP but this is not a defeat for the opposition nor for the Cemaat. During the long period until the presidential election, the Gulen community will continue its efforts in order to destabilize Erdogan and Erdogan will retaliate with an operation similar to the Ergenekon case. (probably, Erdogan will liquidate the Guven movement). In this case, it will be difficult to re-establish confidence in the economy. Even if the politics leave totally the arena in Turkey, the growth model is now blocked. It is very difficult to grow without raising the current account deficit to GDP ratio to 7% and the inflation to 10%. If AKP wants to increase its chances in the presidential election, it will have to keep the economy alive. It is hard to achieve this without scaring the foreign capital.
But the most frightening is the following: the situation that the analyst close to AKP say as "CHP has been squeezed in the Thrace and Aegean coast" is in fact that CHP is the first party (or showed a performance close to AKP) in the regions and metropolitan areas where Turkey's modern, well-educated people and high-productivity regions are present. AKP continues to be the party of the Black Sea coast and Central Anatolia which are conservative, poor and closed societies. Turkey is experiencing two simultaneous political races. The first is the struggle for equality and ethnicity between MHP and BDP. The second is the lifestyle war raging between CHP representing the "moderns" and the AKP representing the "conservatives". But no one will win this race. Turkey did not make any positive move for a long time in the peace process and it will continue to be ruled by a government who has been elected by a small majority but is hated by the everyone else.
The other possible scenario would be as follows:
Following this local election, Erdogan liquidates the Gulen movement by a series of arrests and trials. At the same time, he establishes his authoritarian rule by clamping down his opponents and dissent in general through the ruthless use of law enforcement and intensifying the censorship efforts (thus, he will start to become a threat to the democracy). He may wish to continue as Prime Minister for a fourth consecutive term by changing the AKP rules. Before the presidential elections, he choses a relatively weak person to run the AKP and joins the presidential election. Once he is elected as the president, he will rule AKP through this weak person until the elections of 2015. In this election, AKP will lose due to the economic crisis and political unrest and the CHP-MHP coalition government will replace it. This government will enact laws which will limit the powers of the presidency and thus rendering Erdogan's position as meaningless and in time, he will be liquidated. Then, the liquidation of the moderate Islamic movement will follow by the installment of a secular regime in its proper form. This will also be a marked departure of Turkey from the East by turning its face to the West and strengthen its ties with the European Union.
But for the time being, Turkey did not make its decision over whether it wants a democracy or an arbitrary autocratic rule. But the economy will be the criteria overriding all other necessities. Half of the corruption claims in ony other democratic country is enough for the collapse of the government but in Turkey, this was reflected only by a 5% loss in terms of support. Decidedly, the political recipe of Erdogan which is simply based on ruthless antagonism won the day again... But for how long?
Monday 31 March 2014
Monday 24 March 2014
THE OUTLOOK FOR THE TURKISH STOCK MARKET UNTIL AUGUST 2014
There is a perception in the market that not even the most objective data are unable to break: the ruling party AKP will be victorious in the municipal election of March 30th 2014, it will defeat its political opponents, it will also win the presidential elections and thus it will return to the old pragmatic days and will start the reforms that will permit the economy to grow again at 5%.
Turkey is still moving by indexing herself to the developments in the Emerging Markets. Therefore, if the Emerging markets' assets crash, the TL denominated assets may perhaps not rise but will depreciate less. There is the AKP bubble in Turkey and it is incorrectly priced in terms of historical measures. This error will start to be rectified in the second half of April and will last until the presidential elections.
The trust in AKP is not the only reason why the TL denominated assets have appreciated during the month of March. The message of the Fed has been finally interpreted correctly. The Fed will delay as much as possible the monetary tightening, and when it will start doing it, it will do it as slowly as possible. Therefore, the carry trade money that should leave the Emerging Markets stays where it is and the U.S. dollar as well as the U.S. bond interest rates are trading weaker. Fed's generosity prevents the markets in pricing the threat of the crash in China, Russia's economy entering into a recession as well as slowing down Turkey and Central Europe. But every strong macro-economic data coming from the U.S. will force the determination of the carry-traders and will cause the Emerging Markets to change direction very often.
In particular in Turkey, the investors do not accept the fact that Ankara is stubbornly analogous to Moscow thus the public authority has lost its credibility and predictability. The prices of the financial assets in Russia are among the Emerging Markets which got the most discount. But in Turkey, with six days remaining to the elections, there is almost no discount.
This perception will carry on for a week or two following the elections. If AKP earns 40% or more of the votes during the municipal elections, Erdogan will receive a vote of confidence from the public and will thus get a visa for the presidential elections. The elections of March are one of the most difficult to anticipate in recent years but according to the available surveys, AKP may have a result that is a little more the 40%. Therefore, the investors who place their bets on the election results will not be disappointed. Of course, if the opposite happens and the AKP earns less then 40% of the votes (say 35%), we will witness one of the wildest sale wave in recent history, because in that scenario, Turkey becomes unmanageable and will face a strong global pressure for early elections.
Why wouldn't the rally of the elections last? If AKP does not receive 50% of the votes, the Gulen movement will not stop the war. They possess thousands of tape and video recordings and they will publish them everyday. The closing of the Twitter shows that the nerves of Erdogan do not withstand this daily cupping. Following the March elections, Erdogan will will implement a very harsh punishment campaign upon the Gulen movement. During this campaign, TUSIAD and the main stream media which stay neural in this fight, will also receive a severe battering. A mindset that shuts down the Twitter for nothing may also do the same to Facebook and Youtube; so what will happen next? The strategy of "all-out war after the elections" that Erdogan has already promised will first destroy the public confidence and then we will see again that private sector will not undertake any investment nor spending. Following that, the reactions all around the world will increase so much that even the most cold-blooded fund managers will avoid risk by stepping aside. It is precisely at that time that the longest wave of selling in recent history will begin.
If AKP does not receive 45% or more of the votes, it will jeopardize its probability of winning the presidential election of August 2014. First of all, Erdogan and Gul are receiving votes as much as their party does because they have alienated the voters. Secondly, the pause that started in the economy will become worse during the summer and will reduce the loyalty of the AKP supporters. And lastly, if Ocalan's requests are not met, the Kurds who are voting for BDP-HDP will retrieve their support from the AKP. Until now, the motto "spend as much as you collect taxes" which was permitting to AKP to secure the budgetary balance will disappear as it embarks into an electoral populism and thus will shake the bond market.
Thanks to the endless public means at its disposal and most importantly with its non-compliant attitude, the AKP will win the presidential election or even Gul may win. That's when we will start to talk about whether the bear market has reached the end. But there is a 40% probability that AKP plays the wrong cards and a person from the opposition wins the presidential elections. Again Turkey will become once more unmanageable. Perhaps the ISE will come to the threshold of the longest bear market of its history since its debut by dropping below 40.000 and we start to envision the landscape that will arise following the general elections of 2015.
Turkey is still moving by indexing herself to the developments in the Emerging Markets. Therefore, if the Emerging markets' assets crash, the TL denominated assets may perhaps not rise but will depreciate less. There is the AKP bubble in Turkey and it is incorrectly priced in terms of historical measures. This error will start to be rectified in the second half of April and will last until the presidential elections.
The trust in AKP is not the only reason why the TL denominated assets have appreciated during the month of March. The message of the Fed has been finally interpreted correctly. The Fed will delay as much as possible the monetary tightening, and when it will start doing it, it will do it as slowly as possible. Therefore, the carry trade money that should leave the Emerging Markets stays where it is and the U.S. dollar as well as the U.S. bond interest rates are trading weaker. Fed's generosity prevents the markets in pricing the threat of the crash in China, Russia's economy entering into a recession as well as slowing down Turkey and Central Europe. But every strong macro-economic data coming from the U.S. will force the determination of the carry-traders and will cause the Emerging Markets to change direction very often.
In particular in Turkey, the investors do not accept the fact that Ankara is stubbornly analogous to Moscow thus the public authority has lost its credibility and predictability. The prices of the financial assets in Russia are among the Emerging Markets which got the most discount. But in Turkey, with six days remaining to the elections, there is almost no discount.
This perception will carry on for a week or two following the elections. If AKP earns 40% or more of the votes during the municipal elections, Erdogan will receive a vote of confidence from the public and will thus get a visa for the presidential elections. The elections of March are one of the most difficult to anticipate in recent years but according to the available surveys, AKP may have a result that is a little more the 40%. Therefore, the investors who place their bets on the election results will not be disappointed. Of course, if the opposite happens and the AKP earns less then 40% of the votes (say 35%), we will witness one of the wildest sale wave in recent history, because in that scenario, Turkey becomes unmanageable and will face a strong global pressure for early elections.
Why wouldn't the rally of the elections last? If AKP does not receive 50% of the votes, the Gulen movement will not stop the war. They possess thousands of tape and video recordings and they will publish them everyday. The closing of the Twitter shows that the nerves of Erdogan do not withstand this daily cupping. Following the March elections, Erdogan will will implement a very harsh punishment campaign upon the Gulen movement. During this campaign, TUSIAD and the main stream media which stay neural in this fight, will also receive a severe battering. A mindset that shuts down the Twitter for nothing may also do the same to Facebook and Youtube; so what will happen next? The strategy of "all-out war after the elections" that Erdogan has already promised will first destroy the public confidence and then we will see again that private sector will not undertake any investment nor spending. Following that, the reactions all around the world will increase so much that even the most cold-blooded fund managers will avoid risk by stepping aside. It is precisely at that time that the longest wave of selling in recent history will begin.
If AKP does not receive 45% or more of the votes, it will jeopardize its probability of winning the presidential election of August 2014. First of all, Erdogan and Gul are receiving votes as much as their party does because they have alienated the voters. Secondly, the pause that started in the economy will become worse during the summer and will reduce the loyalty of the AKP supporters. And lastly, if Ocalan's requests are not met, the Kurds who are voting for BDP-HDP will retrieve their support from the AKP. Until now, the motto "spend as much as you collect taxes" which was permitting to AKP to secure the budgetary balance will disappear as it embarks into an electoral populism and thus will shake the bond market.
Thanks to the endless public means at its disposal and most importantly with its non-compliant attitude, the AKP will win the presidential election or even Gul may win. That's when we will start to talk about whether the bear market has reached the end. But there is a 40% probability that AKP plays the wrong cards and a person from the opposition wins the presidential elections. Again Turkey will become once more unmanageable. Perhaps the ISE will come to the threshold of the longest bear market of its history since its debut by dropping below 40.000 and we start to envision the landscape that will arise following the general elections of 2015.
Monday 3 March 2014
ECONOMIC OUTLOOK OF TURKEY FOR MARCH 2014: THE VAIN HOPE...
All the articles and researches on the emerging markets have a common phrase: "The prices are very cheap." Indeed these markets are cheap but they do not guarantee a rally. There is an absence of a trigger in the emerging markets and in particular in Turkey that would create a rally in the financial assets. Quite the contrary; the risks outweigh everyday.
The CPI level of February will not support the markets in terms of a buy. The heavy reimbursement of the Treasury who is in need of borrowing is going to have a hard time in March. The Treasury has an accumulation of debt of 30 billion TL in the account of the Turkish Central Bank but the interest rates jump when the foreigners do not participate in the auctions. The most likely scenario would be the rise to 12% of the benchmark of the compounded interest rate of 2 years bond during the month of March.
The ISE-100 is oscillating in a narrow band with a noticeable contraction in the volume of transactions for there no story that can move the market. The financial results of 2013 are not bright and the eyes are turned towards the profits of the year 2014-2015. We will be able to evaluate as to how much the ISE-100 is cheap by the disclosure of March's economic data. In case that the economic contraction exceeds the expectations, we may see a drop in the ISE-100 with the downside revision of the profits.
The elections as well as the strife in the politics constitute a big threat. With the uploading of the first audio recording between the Prime Minister and his son on the Youtube has broken upwards the USD/TL trend. This cycle will set as a model for the month of March. The Gulen movement will feed the press with evidences that will undermine the confidence in the AKP. There is a serious probability that in retaliation to this, the AKP starts the gang related inquiries concerning the Gulen movement or gives a hard time to TUSKON - TUSIAD or the press thus disrupting the morale.
The markets will attempt to hold and go up with the momentum incoming from the exterior, or with data that exceed optimistically the expectations in the economy. Because Turkey is in the middle of the biggest political crisis in its recent history, it is hard to believe that these efforts will ever be successful. The market outlook will become clearer only after end of the local election of March 30th. Until then, nothing will be cheap at any price...
The CPI level of February will not support the markets in terms of a buy. The heavy reimbursement of the Treasury who is in need of borrowing is going to have a hard time in March. The Treasury has an accumulation of debt of 30 billion TL in the account of the Turkish Central Bank but the interest rates jump when the foreigners do not participate in the auctions. The most likely scenario would be the rise to 12% of the benchmark of the compounded interest rate of 2 years bond during the month of March.
The ISE-100 is oscillating in a narrow band with a noticeable contraction in the volume of transactions for there no story that can move the market. The financial results of 2013 are not bright and the eyes are turned towards the profits of the year 2014-2015. We will be able to evaluate as to how much the ISE-100 is cheap by the disclosure of March's economic data. In case that the economic contraction exceeds the expectations, we may see a drop in the ISE-100 with the downside revision of the profits.
The elections as well as the strife in the politics constitute a big threat. With the uploading of the first audio recording between the Prime Minister and his son on the Youtube has broken upwards the USD/TL trend. This cycle will set as a model for the month of March. The Gulen movement will feed the press with evidences that will undermine the confidence in the AKP. There is a serious probability that in retaliation to this, the AKP starts the gang related inquiries concerning the Gulen movement or gives a hard time to TUSKON - TUSIAD or the press thus disrupting the morale.
The markets will attempt to hold and go up with the momentum incoming from the exterior, or with data that exceed optimistically the expectations in the economy. Because Turkey is in the middle of the biggest political crisis in its recent history, it is hard to believe that these efforts will ever be successful. The market outlook will become clearer only after end of the local election of March 30th. Until then, nothing will be cheap at any price...
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