While a group of intellectuals wage a pro-Constitutional reform campaign under the slogan “Not Enough, But Yes,” markets have determined their own motto ahead of the Sept. 12 referendum.
Speaking to business daily Referans, analysts said the market was hoping for a “Yes, even if a weak one,” which would create a buffer in the domestic market against financial shocks from abroad. The same analysts are also predicting a “yes” result, at a slim majority of 55 percent.
“The market has priced in a ‘weak yes,’ as opposed to a strong one that would see more than 60 percent voting for constitutional reform,” Referans said. “Investors are looking into the possibility of a continuation of the single-party government, rather than the contents of the constitutional package.”
Fatih Keresteci, Treasury Strategist at HSBC Turkey, said the referendum was important for the market in the sense of what it may suggest regarding the continuation of the Justice and Development Party, or AKP, government.
“To emerge as the single government once again at the July 2011 general elections, the AKP has to get at least 40 percent of the votes,” Keresteci said. “Subtracting 5 percentage points from the ‘yes’ votes on Sept. 12 could provide an estimate on the general election’s outcome. A ‘yes’ above 45 percent would point toward the continuation of the AKP rule and would thus be perceived positively by the markets.”
Spring atmosphere
A “yes” at the Sept. 12 ballot box, coupled with positive developments in the global economy, would result in “a spring atmosphere” in Turkish markets, Keresteci told Referans. “If developments abroad are not positive, such a ‘yes’ would be a buffer against sharp selling.”
Piotry Matys, the Turkey-based analyst for 4castweb, said the “yes” seen in many opinion polls is “positive for Turkish assets.” Still, a “weak yes” could bring in profit selling at the Istanbul Stock Exchange, Matys said.
“But any kind of weakness would be short-term,” he told Referans. “I do not think the government would opt for an early general election even in the case of a weak ‘yes.’ Instead, it would work to strengthen the climate of trust until the general elections.”
If voters say “no” on Sept. 12, Matys expects a “sharp correction” in Turkish markets. “Even so, I don’t think Turkish assets would be hurt seriously, as foreign investors continue to find Turkey attractive.”
In a report released Monday, Citigroup’s İlker Domaç and Gültekin Işıklar said a “no” would constitute a negative surprise for the markets. “We believe that such an outcome, which would be the AKP’s first defeat at the polls, would lead to a more competitive political scene ahead of the 2011 general elections, thereby raising the level of political noise,” the analysts said.
The Citigroup report said ratification by a narrow margin of below 55 percent could create “a heated debate over the legitimacy of the referendum, particularly if the turnout were to be low.” But if the ratification margin is over 55 percent, “the AKP would buttress its standing ahead of the 2011 general elections,”
