[The lira] is the weakest link.
That’s from Rabobank’s Piotr Matys, who worries that if the selloff in Turkey’s currency worsens over the next week or two, it could have knock-on effects for EM FX more broadly.
As you’re probably aware, there’s a recount going on in Istanbul where, long story short, NATO’s favorite autocrat is refusing to concede, despite AKP’s candidate losing the mayor’s office to the opposition pick last week. AKP has held Istanbul since 1994.
“I understand that it is not easy to lose Istanbul after ruling it for 25 years, but this is what democracy is about”, opposition pick Ekrem Imamoglu said Sunday.
Duly noted, but there’s just one problem: Turkey isn’t really a democracy, which is why, on Monday, Recep Tayyip Erdogan is “asking” (and the scare quotes are there for a reason) the election board to look into what he’s calling “widespread irregularities” in the Istanbul vote.
In case you find that ambiguous, Erdogan clarified as follows:
There is stealing from the boxes. We’re applying to the YSK against that organized intervention at the ballot box.
Obviously, Erdogan is not going to concede Istanbul. That should have been clear days ago, but to anyone who was in doubt, you can put those doubts to bed.
This is anything but surprising. Prior to the local elections, we spilled gallons of digital ink in these pages reiterating our long-standing contention that EM watchers of all stripes are far too optimistic when it comes to assuming that, at some point, Erdogan will put the long-term good of the country (and foreign investors) ahead of political expediency. That’s never – ever – going to happen. He is an autocrat and after he consolidated power last year, Turkey essentially descended into one-man rule. That’s the reality of this situation, and while most EM managers will claim to know that as a matter of course (not paying lip service to it would be a dereliction of duty), many of those same folks do not truly accept it, because if they did, you wouldn’t hear the kind of incredulity from them you often hear when something like what’s happening now takes place.
In any case, the lira was pummeled anew on Monday, rekindling concerns just two weeks on from the draconian pre-election crackdown that trapped foreign investors and triggered a bloodbath in Turkish equities.
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Everything You Didn’t Want To Know About Friday’s Collapse In The Turkish Lira
After bouncing back strongly last week, Turkish stocks are down 1.5%.
Not helping matters was CBT’s rolling back of emergency measures put in place in the wake of the currency’s slide on March 22. CBT restarted 1-week repo auctions and slashed the rates it offers on the lira leg of swaps with commercial lenders.
The lira’s 5-day loss now stands at more than 3.5% and today’s intraday levels are the weakest since March 25, when the above-mentioned emergency measures went into effect.
Yields on local currency debt rose, CDS widened, etc. etc.
“So, [it] looks like Erdogan [is] pushing for repeat election in Istanbul, after repeat elections in Ankara ruled out by YSK”, BlueBay’s Tim Ash said Monday, adding that this is “the worse case result for markets – as if Turkey needs yet another election.”
Right. But, again, it’s Erdogan. And what else it is, is a preview of what might be in store for America in 2020.
If you think I’m kidding, well then just ask Erdogan, who said this on Monday:
In the US they renew elections when there is a one percentage point difference.
Nothing further.
And, as you’ve often pointed out, wherever Erdogan goes, Trump usually follows. He’s already complained about close races in the US in which “the democrats always seem to win.” My impression is the exact opposite, so I view this as foreshadowing serious GOP fuckery come 2020.