March 28, 2024
Turkey Municipal Elections
Synopsis:
Turkey’s municipal elections are attracting attention due to significant political implications, with over 61 million voters across 81 provinces choosing among 34 parties.
In Ankara, the opposition Republic People’s Party (CHP) mayor is expected to win, while Kurdish candidates are anticipated to succeed in key southeastern cities.
The Istanbul mayoral race is crucial, with current mayor Ekrem Imamoglu seen as a challenger to President Erdogan and the AKP. A win for Imamoglu could elevate him to head the main opposition party.
Local issues such as public services, traffic, and urban development projects like the proposed USD 15 billion canal project are prominent in the election discourse.
Economic concerns, including high inflation, interest rates, and deficits, alongside efforts to attract external financing, are pivotal factors influencing investor sentiment in Turkey.
While local elections typically fly under investors’ radar, Turkey’s municipal polls this weekend have captured widespread attention. With over 61 million voters across 81 provinces, the electorate faces a choice among 34 registered parties. In the capital city of Ankara, the incumbent opposition Republic People’s Party (CHP) mayor, Mansur Yavas, is anticipated to secure victory (Fig 1), while Kurdish candidates are poised for success in key southeastern cities. AI-generated sentiment analysis underscores the prevailing positive sentiment toward the ruling AKP party nationwide.
Source: EMAlpha
Fig. 1: Ankara Mayor Election: Sentiment scores for the incumbent, CHP’s Mansur Yavas, and AKP’s Turgut Altinok, based on local Turkish media. The scores are normalized such that +1.00 signifies extreme optimism and -1.00 signifies extreme pessimism
Source: EMAlpha
Fig. 2: Istanbul Mayor Election: Sentiment scores for the incumbent, CHP’s Ekrem Imamoglu, and AKP’s Murat Kurum, based on local Turkish media. The scores are normalized such that +1.00 signifies extreme optimism and -1.00 signifies extreme pessimism.
Source: EMAlpha
Fig. 3: Turkey political parties sentiment: Sentiment scores based on local Turkish media flow. The scores are normalized such that +1.00 signifies extreme optimism and -1.00 signifies extreme pessimism.
The Istanbul mayoral race is starkly defined as a showdown between the incumbent Mayor, CHP party’s Ekrem Imamoglu, and President Erdogan’s favored candidate, Murat Kurum (Fig 2). A victory for Ekrem Imamoglu would likely propel him to head the main opposition party and position him as a contender for the presidency in 2028. Conversely, a win by the AKP’s Murat Kurum would reinforce the ruling party’s dominance, potentially enabling Erdogan to pursue constitutional changes, including the abolition of presidential term limits. In the 2019 elections, Imamoglu was supported by a CHP-led National Alliance, which has since dissolved. This year, the former CHP allies, the nationalist Iyi Party and the pro-Kurdish People’s Equality and Democracy Party (DEM), are fielding their own candidates. While Kurdish voters constitute approximately 10 percent of Istanbul’s population, the AKP-led People’s Alliance, supported by the nationalist MHP, remains united (Fig. 3).
In Istanbul, like in many major cities, local concerns such as inadequate public services and traffic congestion take center stage in election discussions. However, the city’s future physical landscape is also at stake, with Erdogan proposing a USD 15 billion canal project as an alternative to the Bosporus Strait, dubbed his “crazy project.” While a recent court ruling upheld an opposition complaint, citing environmental impact and exacerbation of traffic issues (Fig. 4), there are fears that an AKP victory could reignite momentum for the project. Another pressing issue is housing, especially in the aftermath of last year’s earthquakes. According to leading seismologists cited by The Economist, there is a greater than 60 percent chance of a major earthquake hitting Istanbul before 2030, putting hundreds of thousands of buildings at risk due to non-compliance with safety codes.
Source: EMAlpha
Fig. 4: Erdogan’s Bosporus Strait-related sentiment: Strong negative sentiment is clearly evinced in local Turkish media due to concerns about the strait’s environmental impact. Scores measured from Turkey’s local media content using EMAlpha’s Multilingual AI methodology. The scores are normalized such that +1.00 signifies extreme optimism and -1.00 signifies extreme pessimism.
The cost of upgrading or replacing these structures is significant, with the AKP candidate promising 650,000 new housing units over five years, estimated to cost around 5 percent of GDP. Concurrently, property prices in Istanbul have surged by 270 percent over the past two years due to inflation and an influx of Russian and Ukrainian buyers. Sentiment indicators for housing reflect deep concerns about both unsafe buildings and escalating prices (Fig 6).
Amidst typical municipal election concerns, voters are increasingly focused on the broader economic landscape. Despite a 4.5 percent GDP growth in 2023, inflation is nearing 70 percent, prompting negative media coverage on the overall economy (Fig 5). Just days before the elections, a surprising move saw the central bank raise interest rates by 500 bps to 50 percent, influencing sentiment indicators. Previously, President Erdogan attributed inflation to high interest rates, but post-election, the new economic team introduced conventional monetary policies, resulting in a 3,650 bps tightening to curb inflation and stabilize the depreciating lira. After a 36.5 percent fall against the US dollar in 2023, the Turkish lira has declined over 8 percent this year. Turkey continues to grapple with high fiscal and current account deficits, attributed in part to post-earthquake reconstruction efforts and regional conflicts. Economy Minister Mehmet Simsek has linked the fiscal gap to expenditures following the devastating earthquakes which killed more than 50,000 and devasted the southeastern region of the country.
Source: EMAlpha
Fig. 5: Turkey key economic metrics sentiment: The negative sentiment for inflation correlates to the soaring positive sentiment for gold. All scores measured from Turkey’s local media content using EMAlpha’s Multilingual AI methodology. The scores are normalized such that +1.00 signifies extreme optimism and -1.00 signifies extreme pessimism.
The Istanbul Stock Exchange has surged 13 percent in USD terms on the MSCI Index this year, driven by local investors seeking to safeguard their savings amidst soaring inflation and a depreciating currency. This marks a significant reversal from last year’s 9 percent decline. Despite this positive trend, AI sentiment indicators suggest a pessimistic outlook on the market (Fig 6), potentially stemming from frustration with equities being perceived as the sole source of “safe savings.” Meanwhile, the local currency BIST All Share Index has surged 26 percent year-to-date and 117 percent over the past twelve months, indicating robust market performance. Local bond yields paint a favorable long-term outlook for declining inflation, with the two-year yielding 45.6 percent and the ten-year trading nearly 20 percentage points lower. However, the central bank anticipates inflation to peak at 70 percent in May before receding. Challenges such as climate change and last year’s earthquake aftermath may hinder crop output and sustain high food prices, affecting inflation dynamics.
During the first quarter, Turkey has completed over half of its targeted USD 10 billion in external financing for the year. In February, it successfully issued a 10-year USD 3 billion Eurobond at a yield of 7.8 percent. Additionally, this month saw the issuance of its first EUR-denominated bond in several years, raising EUR 2 billion in 6-year paper at 6.125%. Furthermore, the country’s sovereign wealth fund, responsible for managing state-owned assets, made its inaugural entry into the international market with a 5-year, USD 500 million placement at 8.4 percent.
Source: EMAlpha
Fig. 6: Turkey key economic metrics sentiment: The positive sentiment for interest rate reflects the change in Erdogan’s views who was a staunch advocate of slashing interest rates to counter inflation. The scores are normalized such that +1.00 signifies extreme optimism and -1.00 signifies extreme pessimism.
The outcome of the municipal elections and subsequent political developments by the AKP will significantly influence investor sentiment in the coming months, alongside economic and financial market factors such as inflation and the performance of the lira. While the stock market is anticipated to maintain its strong performance, foreign participation may remain subdued compared to previous levels. Negative real interest rates and the declining lira are likely to discourage interest in local currency debt. As of January, foreign investors held a mere 2 percent, equivalent to USD 2 billion, of the TRY government bond market.
Source: EMAlpha
Fig. 7: Turkey sentiment metrics: While local media limits its criticism of government, which shows as positive score for government sentiment, there are plenty of concerns when it comes to topics about business environment, consumer sentiment, and trade issues. The scores are normalized such that +1.00 signifies extreme optimism and -1.00 signifies extreme pessimism.
