Turkey: Short-term buying, longer-term underperformance - TDS

Research Team at TDS, suggests that the 15th of July has been for Turkey one of the most dramatic days in recent history as for the first time since 1980, the military staged a coup to overthrow the democratically elected government.

Key Quotes 

“The coup failed in a matter of hours, with the government returning in full control of the country already on Saturday. Thousands of arrests have followed.

Markets reacted quickly, closing with a sharp lira loss of near 5% to the USD on Friday. Today, USDTRY fell over 3% after reopening, but the lira has weakened since and is currently trading around 2.96.

Risk sentiment has also improved, likely supported by the lira rebound on Monday. Rand is also nearly 2% stronger on the day, while as a by product of Friday’s events.

The failed coup, however, leaves many uncertainties and raises questions about political risks and stability in Turkey going forward. We see risks of deteriorating checks and balances and a more authoritarian regime in the country, worsening relations with the US and the EU, and ultimately risks of downgrades.

We also see the CBRT decision to cut the O/N lending rate only by 25bps to 8.50% tomorrow, instead of 50bps we would have otherwise expected, the most likely outcome. This should support the TRY rebound for now.”