Glasses on newspaper featuring markets and crossword.

When Financial Markets Misread Politics

When Turkey’s ruling AKP regained a parliamentary majority in the country’s general election on November 1, financial markets cheered. The same short-term focus and herd behavior that often lead financial markets to neglect more significant economic fundamentals can also distort markets’ judgment of countries' political prospects.

CAMBRIDGE – When Turkey’s Justice and Development Party (AKP) defied pundits and pollsters by regaining a parliamentary majority in the country’s general election on November 1, financial markets cheered. The next day, the Istanbul stock exchange rose by more than 5%, and the Turkish lira rallied.

Never mind that one would be hard pressed to find anyone in business or financial circles these days with a nice thing to say about Recep Tayyip Erdoğan or the AKP that he led before ascending to the presidency in 2014. And make no mistake: Though Turkey’s president is supposed to be above party politics, Erdoğan remains very much at the helm.

Indeed, it was Erdoğan’s divide-and-rule strategy – fueling religious populism and nationalist sentiment, and inflaming ethnic tension with the Kurds – that carried the AKP to victory. Arguably, it was the only strategy that could work. After all, his regime has alienated liberals with its attacks on the media; business leaders with its expropriation of companies affiliated with his erstwhile allies in the so-called Gülen movement; and the West with its confrontational language and inconsistent stance on the Islamic State.

To continue reading, please log in or enter your email address.

To read this article from our archive, please log in or register now. After entering your email, you'll have access to two free articles from our archive every month. For unlimited access to Project Syndicate, subscribe now.

required

By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in

http://prosyn.org/NEVB2fC;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.