Local Elections Ease Political Risk, For Now
Local elections on March 30 resulted in a resounding victory for Turkey's ruling Justice and Development Party (AKP), a strong confirmation of its enduring popularity and political dominance in the face of a corruption scandal, street protests and souring economy. The result has significantly diminished political uncertainty and will be positive for lira-denominated assets in the short term. However, with upcoming presidential (August) and general (June 2015) elections, we stress that political risk could re-emerge in the coming quarters.
As much as the election speaks to the dominance of the AKP, it also highlights the weakness of opposition parties in the country. The main opposition Republican People's Party's (CHP) vote share was unchanged from general elections in 2011 and only marginally higher than the previous local elections in 2009. Meanwhile, the AKP's vote share of 43.2% was below general elections in 2011 (49.8%), but above local elections in 2009 (38.4%). In our view, this result is an indication that the AKP has thus far escaped relatively unscathed from the corruption scandal, and remains in a strong position to retain their parliamentary majority in upcoming general elections.
That being said, we highlight several key risk factors in the coming quarters: