The Turkish lira hit a record low and stocks tumbled 3 percent on Thursday after coalition talks between the ruling AK Party and the main opposition ended negatively, setting the stage for a snap election. "It's not clear when elections will be. But the idea is that it probably will act as yet another catalyst that impedes investment," said Manik Narain, a strategist at UBS in London.
"The big risk is that we end up having repeat elections and nothing changes. That introduces a lot of uncertainty for Turkish business and the economy." The AKP failed in June's elections to win a single-party majority for the first time since coming to power in 2002. Prime Minister Ahmet Davutoglu has until August 23 to find a coalition partner and form a government or face snap elections.
"The outcome is negative," a senior official with the main opposition CHP told Reuters, following the more than hour-long meeting in Ankara between Davutoglu and CHP leader Kemal Kilicdaroglu that followed weeks of talks between their two parties. President Tayyip Erdogan, who founded the AKP, is said to prefer an early election as the party's best chance of regaining power. Party officials say its leadership has been encouraged by improvements in opinion polls, which suggest it could win a majority if an election were held now. The lira, already one of the worst performing major emerging market currencies this year, tumbled to 2.8210 against the dollar, its weakest on record. The main stock index fell as much as 3 percent before recovering some losses.
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