Erdogan’s gamble paid off

Jan Dehn, head of Research at Ashmore, discusses how the political situation in Turkey looks better after AKP’s victory in the parliamentary election at the weekend. China scraps the one child policy. Venezuela completes the main remaining debt services payments of 2015. Macri pulls ahead of Scioli in Argentina as a New York judge recognises the so-called ‘me toos’.

Political outlook much brighter for Turkey

The near-term political outlook for Turkey looks substantially better today following a decisive victory for President Erdogan’s AKP in the weekend’s parliamentary election. AKP took an absolute majority of seats in parliament – but not enough seats to change the constitution.

This removes, for the foreseeable future, the potential threat of lawsuits and other legal measures against senior government officials and thus stabilises the overall political environment considerably. AKP’s victory will also strengthen President Erdogan’s power within the AKP. The Kurdish HDP party managed to hold on to more than 10% of the votes. This denied AKP the majority required to change the constitution, for example to grant President Erdogan more powers.

Erdogan pursued an aggressive election strategy of confrontation with the Kurds and intervention in the war in Syria and Northern Iraq in a bid to win back defectors from the AKP to the Kurdish HDP and nationalist MHP parties. This strategy appears to have paid off, thus removing the need for a coalition with CHP, the party of Mustafa Kemal (aka Ataturk).

The election outcome is likely to reduce the near-term uncertainty surrounding the political outlook. However, Erdogan’s election strategy has left the political environment in Turkey highly polarised, so some mending of fences may now be required, particularly as pertains to relations with Turkey’s Kurdish minority.

Markets will now be intensely focused on who gets the nod to run the economy and whether long-promised economic reforms will receive fresh momentum.

China birth rate set to increase following end to one-child policy

Almost every week China takes a major policy initiative. Opposite to the actions of governments in the QE world, China’s policy initiatives are mainly structural in nature. This is good. China has a big job on its hands changing its economy from export to domestic demand led growth. But to its great credit, it is positively getting on with the job, while most QE economies wallow in pathetic passivity.

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