Independent Strategy

Turkey – Erdogan heading for a fall?

The situation in Turkey looks grave. The latest corruption scandal probably marks the end for PM Erdogan, although the end-game will be prolonged. This type of leader does not cede power voluntarily and will likely resort to populism at the expense of prudent macroeconomics before he is finally shown the door. Turkish markets are already suffering, but more pain is due. The external financing gap continues to widen. Furthermore, the financing of the external deficit remains of poor quality, comprising mainly short-term bank and portfolio flows and is thus vulnerable to loss of confidence in Turkey and a further tightening of global liquidity focussed on high deficit EMs. We are staying short Turkish lira and would be short Turkey’s international bonds

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