‘New era begins for Turkish assets,’ Spanish lender BBVA flags the market volatility

Recent political turmoil in Türkiye has ushered in a new era of risk premiums for Turkish assets, hindering progress in the country’s disinflation program, Spanish banking giant BBVA reported on Tuesday.

Escalating tensions in the country following a corruption probe targeting Istanbul Mayor Ekrem Imamoglu on Mar. 19 triggered a market downturn in Türkiye, marked by major sell-offs, exits from the Turkish lira, and a demand for foreign currencies.

Emphasizing that the swift measures taken by the Central Bank of the Republic of Türkiye (CBRT) and the Treasury prevented a deeper sell-off, the report noted that additional measures could be introduced in the coming period.

“If political tensions ease in the near future and investor sentiment toward Türkiye normalizes, a return to the previous narrative may be possible,” wrote Tufan Comert, BBVA’s Türkiye markets analyst, in the Türkiye Market Outlook report.

“However, current developments have placed Türkiye on a different timeline. The narrative remains the same, but it is now unfolding under more challenging macroeconomic and financial conditions.”

‘Return to previous conditions will take time’

Based on meetings with 25 investors last week, Comert concluded that much of the damage in Turkish markets has already been done. From this point forward, assets are expected to be priced under a new macroeconomic framework, he added.

The report emphasized that even if political tensions subside in the coming period, a full return to previous market conditions will take time.

Although the initial shockwaves in Türkiye may be fading, ongoing political uncertainty will likely continue to pressure the markets. As a result, investors are expected to demand higher risk premiums in the short term, the report predicted.