The AK Party (AKP) won parliamentary majority in the elections yesterday. With 316 seats out of 550 seats, it means that they do not need to form a coalition government and will be able to carry on as before. The gamble by Tayyip Erdogan has paid off. After loosing their majority in parliament, the other three opposition parties – CHP, MHP and HDP – failed to form a coalition government. This gave an opportunity to Erdogan and the AKP for another round of elections in November.
Obtaining 330 seats in order to change the constitution towards a Presidential system like the US and France (with less checks and balances) was not achieved in both the November 2015 and June 2015 elections. However, the results in November were better for the AK Party, since with 316 seats they have gained parliamentary majority whereas in June they only had 258 seats and faced the possibility of sharing power with an opposition party or loosing it totally if the opposition all worked together (MHP, the right-wing party did not agree).
In short, with Erdogan in the ceremonial post as President combined with the AKP majority in parliament, Erdogan is back in the drivers seat. The question now is how much influence will he exert on the Prime Minister. My estimate is quite alot since the gamble to hold elections again was strongly pushed by Erdogan thus his power and influence has increased within the party after fading recently. In the end, a sort of unofficial Presidential system will develop.
This unofficial Presidential system would operate until the next election. President Erdogan would most likely seek to reassure voters that such a system is viable and reduce any concerns towards autocratic government. Further supporting this view is the recent visit by Germany’s Merkel right before the election which gave a boost towards Erdogan leaving a respectable legacy. Closer ties with Europe as a result of the Syrian migration problem plus US geo-strategic interests has given Erdogan a chance to save his legacy and get back on the world stage as a statesman.
This will solve two things for Erdogan and the AKP. First, by being reintegrated back at the statesman level, he can get back on the stage with Western leaders and regain his credibility. Don’t underestimate the importance of this. When he lost his credibility due to his actions during the Gezi Park and the unfolding corruption scandal with four (4) high-level government ministers dismissed, he was forced to turn for acceptance from Russia (Putin) and China. Not the best category to be put in. I strongly believe that this will have a moderating influence on his autocratic tendencies. History shows that anyone in power that long becomes more autocratic, even in Western countries. Second, over time the corruption scandal will loose relevance and be swept under the rug. Power will be consolidated and opposition media will be quieted or shut down. As things get better security wise and economically (even though there will be a dip), the voters will forget.
Next election, I expect Erdogan and the AKP to try one more time to get enough parliamentary seats in order to change the constitution to a Presidential system. If that happens, the AKP will most likely stay in power for a long time. In a Presidential system, they should be able to field a candidate that would get most of the votes.
Next, we examine the results in-depth and then offer general advice for investors interested in Turkey.
The AKP gained seats in November based on two primary factors. First, security became an issue in the minds of voters due to the violence in the South Eastern part of Turkey with PKK Kurdish rebels. Having de facto control of the media, this allowed the AKP to taint the pro-Kurdish Party HDP as having ties to the PKK. Second, the increased nationalism that resulted as a result of the violence and the suicide attack in Ankara swayed voters from the right-wing MHP party to vote for a stronger right-wing leader (Erdogan). Perceptions of a badly managed coalition talks by the MHP leader also swayed voters to jump to the AK party. In fact, the AKP took in the son of the founder from MHP in their bid to get more national voters.
If we look at the first chart below, the AKP gained 10 parliamentary seats in the four largest cities (Istanbul, Ankara, Izmir and Bursa). In Instabul, which accounted for 7 gained seats, these were at the expense of MHP (lost 3 seats from 10 to 7) and HDP (lost 4 seats from 11 to 7). The two seats gained in Bursa were one seat each from MHP and HDP. In Ankara, MHP lost one seat which went to AKP. In contrast, CHP (the second party) gained two seats from MHP in Izmir. Thus, in the four largest cities, the AKP gained 5 seats from the tainted HDP and 5 seats from nationalistic voters of the MHP.
The next four largest cities are on the second chart. Technically, Konya would be on the list, but it is an AKP stronghold. Diyabakir would replace Mersin, but for similar reasons (it is an HDP stronghold), I did not include it.
In fact, AKP gained one seat in Konya at the expense of MHP and one seat in Diyabakir at the expense of HDP.
AKP gained 1 seat in Adana mainly from the smaller parties, 2 seats in Gaziantep with 1 from MHP and 1 from HDP, 2 seats in Antalya mainly from the smaller parties and 1 seat in Mersin from MHP and HDP voters. In Mersin, CHP also gained a seat at the expense of MHP and HDP.
In short, 8 seats were gained in total by AKP in the next six (6) largest cities. Add the 10 seats gained in the four (4) largest cities and you get a difference of 18 seats for the AK Party.
This is the exact difference needed to form a single-party government. The threshold was 276 seats. In June 2015, AKP had 258 seats. Thus, 258 seats plus 18 seats equals 276 seats. The election was won in these 10 cities mostly at the expense of MHP (nationalism) and HDP (tainted association with PKK).
Investment Theme: the Turkish Lira will get stronger and the stock market will rebound in the short term. Medium to long-term will have some volatility and downturn in economy but if the AK Party can manage to take advantage of the delayed rise in rates in the US by the FED, it will limit the damage. In short, Turkey is too important both geo-politically and for investment potential, thus I would view any dips as a buying opportunity.