Lira Rises as Signs Grow Turkey Vote Will End Government Impasse

Turkey’s lira climbed the most among emerging-market currencies as investors speculated politicians will end a five-month deadlock and form a coalition government even if Sunday’s elections yield a hung parliament.

The currency advanced 0.7 percent to 2.8892 per dollar at 6:41 p.m. in Istanbul, the best performance among 24 peers tracked by Bloomberg. The lira has rallied 4.7 percent in October, poised for its first monthly gain since May. The AK Party, which President Recep Tayyip Erdogan co-founded, will be more willing to form an alliance this time around, the party’s Deputy Chairwoman Nukhet Hotar told CNN-Turk television.

Turkey’s credit risk rose after the AK Party lost its majority in June for the first time since 2002 and political groups failed to form a coalition government, making the nation’s financial markets more vulnerable to a slowdown across emerging markets. While the most recent polls show voter intentions haven’t changed much since then, signs parties are willing to cooperate and avert a third election are rekindling investor appetite for Turkish assets.

“People are getting more hopeful that the elections, though delivering similar results as June, will leave AKP no option but to form a coalition,” Koon Chow, a strategist at Union Bancaire Privee in London, said by e-mail. Investors “are cutting their ‘underweights’ because of the small but not zero chance of a good political outcome, with AKP having a small majority in parliament.”

The AK Party is said to weigh a possible coalition with the country’s biggest opposition party, the CHP, in the event of a hung parliament, two AK Party officials said last week. The pro-Kurdish HDP party is open to discussing a coalition with the two groups, Cumhuriyet newspaper reported.

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