Which way will Turkey turn?

With the upcoming 2023 Turkish presidential election scheduled to take place on 14 May we are sharing our views and sentiments on the possible outcomes and their consequences. 


  • The 2023 Turkish presidential election is one of the most anticipated elections of the year.
  • An opposition party victory could be a game changer for the country and on the global stage.
  • Our exposure to Turkey is low in both our equities and bonds strategies.
  • We will closely monitor the results as they unfold before reassessing our current positions.

Elections, too close to call 

The election is extremely close, with a high likelihood of a second round, which would take place on 28 May.

A narrow victory for Kılıçdaroğlu (either first- or second-round) would likely be contested at Turkey’s Supreme Election Council (YSK). It’s independence is questionable since Erdoğan began a purge of the judiciary after the 2016 coup. If the election result is close demonstrations and unrest from either pro-Erdoğan or anti- Erdoğan citizens could arise. For example, the YSK ordered a re-count and re-run of the Istanbul mayoral elections in 2019, after the pro-Erdoğan candidate lost. It is worth noting that the opposition candidate still won the re-run contest and with a higher vote margin.

For the likely second round, the results of Sunday’s parliamentary elections are also important. If the AKP retains its position as the largest party in parliament (285/600 seats, with two additional parties supporting the majority coalition), as is likely, then Erdoğan could have a better case for the second round because he would be the candidate who could unify the presidency and government. He has significantly increased social spending in the run-up to the election (minimum wage increases, early retirement, loan subsidies, post-earthquake assistance), for example, boosting  wages by 45% for 700,000 public sector workers on 9 May. He might do more in the case of a runoff.

If Erdoğan loses, he will likely step down after a heated contest. With the AKP still the largest party and the current opposition coalition unified by a desire to defeat Erdoğan and not by policy, legislative changes will likely be slow and painful. The new administration could face a crisis as Turkey adjusts and any worsening of the situation for ordinary citizens will allow Erdoğan to capitalize on it in the local elections, scheduled for 2024.


Our current exposure, defensive

  • Equity

Our exposure to Turkey is aligned with the benchmark, for a weight of 0.5%, with only a defensive holding in food retail[1].

We think an opposition victory is ultimately more likely, which should trigger a positive market reaction for equities on the potential adoption of more orthodox economic policies. These would be difficult to implement given the years of imbalances created by Erdoğan since the early 2000s. Internationally, Kılıçdaroğlu wants to put Turkey back on track to join the EU and can be expected to remove Turkey’s opposition to Sweden’s application to join NATO.

  • Bonds

We have zero exposure to Turkey in the hard currency sovereign and corporate emerging debt strategies versus an EMBI benchmark weight of 4.5% and 3.7% for CEMBI[2].

In the local EMD strategy we do not have Turkish bond exposure and have bought dollars versus Turkish Lira (TRY), resulting in an underweight of -4.5% versus benchmark.

In short, hard currency is expensive and we anticipate a much larger downside in the case of an Erdoğan win, versus less upside for an opposition win. In local currency strategies, we expect more of the same under Erdoğan, but in the case of an opposition win, we expect the currency and local government bonds to become freely tradeable. In the short term, that could potentially prompt large declines, but price adjustments and orthodox policy are needed for  foreign investors to consider getting back into local markets.


Opposition victory, a trigger for potential liberalism reform and orthodox policies trigger'

If Erdoğan wins, it will characterize a renewed push towards conservatism, and the situation is unlikely to drastically improve.

If Kılıçdaroğlu wins, many changes are expected to take place, which could begin a recovery from the status of a regime which has often been compared to an autocracy.

The best-case scenario, with low probability, is that Turkey becomes eligible for our sustainable funds as of March 2024 following a Freedom House upgrade. While Turkey is excluded from our sustainable investment universe, it could be partially reversed by returning to a pre-2017 parliamentary system and further, by introducing rule-of-law and judiciary independence reforms. But broader reforms will not happen immediately, as the process will take some time, especially if the AKP retains a majority in parliament.

The opposition is promising changes by introducing liberalizing reforms in terms of rule of law, media freedoms and depoliticization of the judiciary. They have also promised to implement the European Court of Human Rights decisions regarding jailed opponents of Erdoğan. If implemented, these changes could improve the Sustainable Sovereign profile of Turkey.

Under the opposition the new government is likely to try and move back to orthodox policymaking and central bank independence, although the new administration will have to deal with volatility in the short term.

Regarding foreign policy, a rapprochement with the US and NATO (reversing the veto of Sweden’s NATO membership) is to be expected. While Turkey would still play a mediator role towards Russia, it would be of a different style than Erdoğan’s. Another focus point would be on attempt to move forward with trade links with the EU, especially around natural gas, and it could result in a resumption of EU membership negotiations. That being said, there seems to be little appetite for the latter in France and Austria, and a strong anti-Western sentiment in Turkey across parties, so reopening accession talks would be tricky. Apart from that, progress could be made regarding customs union, visa liberalization, cooperation on key topics such as climate, security, defense, and the migration agreement.


Candriam Sovereign Sustainability Model

The view: Turkey is not eligible for Candriam’s Sustainable Universe.

Near term: internal security is the immediate concern.

Turkey achieves a weak score on internal security – so unrest in the aftermath of elections is possible.

Medium term: Social Capital pillar offers the most upside

Our sovereign score is weakest in the Social Capital component of the four pillars.[3]Within Social Capital, Turkey scores poorly in Human Rights and Civil Liberties, Rule of Law, and Democratic Governance – areas where the opposition candidate has promised reform. The External Security sub-component of the model would improve on better cooperation with NATO.

Natural Capital, heavily weighted in the model, could improve if the opposition is elected, as better cooperation with the EU could lead to better environmental regulation. Turkey is also prone to natural disasters.


[1] As of 10.05.2023
[2] JP Morgan EMBI Global Diversified Index and JP Morgan CEMBI Broad Diversified – source Bloomberg, data as of 10.05.2023
[3] Our Sovereign Sustainability Score is calculated as Natural Capital times (Human Capital, plus Social Capital, plus Economic Capital)

  • Nicolas Forest
    Nicolas Forest
    Chief Investment Officer

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