Turkish assets rallied after the result and Isbank went to sell a new bond on Thursday.
The yields may be enticing but Turkey bulls pin their hopes on a belief that now the “political noise is over” Erdogan will turn to improving the economy.
Fitch said his victory may facilitate a revival of “credit-positive reforms”. Indeed, deputy prime minister Mehmet Simsek, a market favourite, suggested accelerating reforms starting in May.
But if Erdogan’s victory speech is anything to go by his slim win served only to embolden his confrontational, despotic approach to government. Sticking two fingers up at the EU, he talked of a reintroducing the death penalty, which would render Turkey’s accession to the Union for lack of a better word, dead. The political noise is most certainly not over.
The executive powers he gained in the referendum will weaken checks and balances on his government, including on its economic policy, leaving Turkey’s outlook even more dependent on his whims.
In addition, questions over the legality of the referendum should matter to the country’s long term investors. If the rule of law tumbles, said analysts, so will foreign direct investment.
Turkey’s economy grew at 2.9% in 2016. This was underperformance. While the sovereign may have a perfect history of servicing its debt, investors must look beyond the short term. The future looks bleak.