After the appointment of two former Wall Street bankers to Turkey's new economy team, the country's stock market has surged to record highs, while the lira remains at an all-time low. This move is offering hope that Turkey may return to more orthodox and conventional policies.
The Borsa Istanbul 100 Index has climbed as much as 1.8% to an all-time peak of 5,730.19, making gains of 25% since the second round of presidential elections on May 28. Yet, in US dollar terms, the benchmark is among the worst-performers this year, falling 18% as a result of lira weakness, which has increased amid signs that the government is loosening its costly intervention strategy.
Since President Recep Tayyip Erdogan pledged a new economy team with “international credibility” in his first speech following the elections, the benchmark has been on an upward trend. On Friday, he appointed Hafize Gaye Erkan, a former co-chief executive officer of First Republic Bank, to head the country’s central bank. This move comes a week after Mehmet Simsek, a former Merrill Lynch strategist, was appointed as the new Treasury and Finance Minister. Traders are hopeful that the appointments show Turkey is moving away from the unorthodox economic policies that have led to a capital flight by foreign investors in recent years.
These appointments bring hope to the Turkish market that the country may return to more orthodox policies, which are often preferred by foreign investors. The appointment of two highly-respected former Wall Street bankers to key economic positions is a sign that President Erdogan is willing to embrace more conventional policies. The Turkish central bank has often been accused of not being independent enough, and by bringing a former Wall Street insider to head the central bank, there's a chance that the bank may become more independent in the future. Similarly, with a former Merrill Lynch strategist appointed as the Treasury and Finance Minister, the market may perceive that Turkey's economic policies could become more transparent and predictable, both of which are desirable characteristics for foreign investors.
While the Turkish market has been on an upward trend, the country's currency, the lira, has been on a downward trend. This has been accelerated by the government's costly intervention strategy, which has seen them pump billions of dollars in foreign currency reserves to support the lira. This has led to a capital flight by foreign investors, who are looking for more stable economies to invest in. If the new economic team can bring stability to the economy and promote more orthodox policies, it could encourage foreign investors to return to the Turkish market.
Overall, the Turkish market has shown signs of optimism with the appointment of two former Wall Street bankers to key economic positions, and the benchmark has reached record highs. The appointment of these individuals suggests that Turkey could return to more orthodox policies, which may provide stability to the economy and encourage foreign investors to return to the market. However, it remains to be seen if this will be enough to reverse the lira's downward trend, as the government continues to grapple with economic challenges.