Investors have welcomed the re-election of Turkey's ruling APK party in a general election held on Sunday.
Political instability in the country reached a climax in May when the Turkish parliament failed to elect a president, which triggered a general election.
Many investors had already lowered their exposure to Turkish equities in April when relations between the secular military and the Islamist APK party.
However, several investors think that the AKP’s blend of economic reform and moderate Islam has helped Turkey make great strides in the past five years and they are hopeful this will continue.
Commenting on the election results, Stuart Richards, of Hexam Capital, says: “The AKP has been crucial in lowering Turkey’s rampant inflation to a manageable level and has reduced its total public net debt from 83 per cent of GDP to around 55 per cent.”
Richards lowered exposure to Turkey for the Hexam Emerging Europe fund, which he manages, from 19% to 6% in April.
Ece Ugurtas, manager of the Baring Emerging Market Income Fund, comments: “Bonds, equities and the Turkish Lira are rallying this morning on the back of the result, even though it had largely been anticipated by investors.”
However, there is still uncertainty surrounding the election results as the AKP do not hold a two thirds majority needed to make constitutional changes and a President still needs to be elected..
Ugurtas says: “This will be a delicate time for the AKP, facing an opposition with 40% of the national vote and the ability to block the Presidential vote with the 2/3rds quorum requirement.
“We believe this is likely to mean that the AKP seeks a compromise candidate acceptable to the opposition. In turn, this should help defuse tensions between the religious establishment and the military who remain the secular guardians of the Turkish state.”
The AKP has been Turkey’s ruling party for five-years and has executed a series of economic and political reforms in a bid to become a member of the EU.
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