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StockBeat - Turkish Delight as Stocks, Lira Soar on Istanbul Vote

By Geoffrey Smith -- Turkey’s currency, bond and stock markets are all flying Monday morning in Europe, after a re-run election in Istanbul, the country’s largest city and commercial center, resulted in a big defeat for the ruling party of President Recep Tayyip Erdogan.

At 4:45 AM ET, the lira had gained over 1.4% against the dollar to hit a three-week high of 5.7060. The yield on the government’s benchmark 10-year bond fell by a full percentage point to 16.08% while the benchmark stock index hit its highest level since April with a 1.8% rise.

The lira had already started to make gains on Sunday after the results of the election, but added to them after Erdogan’s party formally conceded defeat, banishing fears that it would use its power to stifle the democratic process. Such a reaction would have spelled further trouble for Turkish assets, which have fallen this year under strain from the government's unorthodox efforts to keep an ongoing debt crisis under control at the country's banks.

“It’s the best-case outcome,” said Paul McNamara, a portfolio manager with Zurich-based asset manager GAM. “It makes emergency stimulus or currency intervention, neither of which Turkey can afford, less likely.”

McNamara stressed the importance of Erdogan and the AKP’s acceptance of defeat.

“We avoid the demonstrations that would have followed more attempts to reverse (the result of the vote, and) the government maintains legitimacy,” he argued.

It’s all a sharp contrast to Europe’s more developed markets, which were mostly lower after another gloomy survey from the think tank Ifo, whose closely-watched index of German business sentiment remained stuck at its lowest in seven years. While companies reported a marginal improvement in current conditions, their expectations darkened once again.

The German Dax was the worst-performing index in Europe, losing 0.4%, as the Ifo report weighed on a market already hit by yet another profit warning from Mercedes-Benz parent Daimler (DE:DAIGn). The company issued its third profit warning in less than a year on Sunday night, blaming extra costs from the diesel emissions scandal.

Elsewhere, the broad Euro Stoxx 600 benchmark was down 0.1%, while the U.K. FTSE 100 was up 0.1%

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