Markets Welcome Turkish Vote Result

The Turkish lira strengthened and bond yields fell Monday, as markets digested what some economists called a "goldilocks" outcome in Turkish elections.

As voting begins in Turkish elections, Prime Minister Tayyip Erdogan is to set to win a third consecutive term in office. Video courtesy Reuters.

The religious conservative and market-friendly Justice and Development Party, or AKP, scored a landslide third-term victory in the parliamentary vote Sunday with 49.9% of the vote, while at the same time failing to gain enough seats to rewrite the country's constitution alone, according to unofficial results.

While not a surprise, the outcome reassured markets, which had worried that if Prime Minister Recep Tayyip Erdogan secured the super-majority he wanted in parliament, he would have been tempted to drive through controversial changes to the constitution at risk of triggering political turmoil.

"Encouragingly…if the party wants to pass constitutional reform it will now need to work through parliament and also then call a referendum," said Royal Bank of Scotland emerging-markets economist Tim Ash, in a research note on the result titled "Goldilocks election result for the market."

"This should reassure markets, but the concern still is that the government could get bogged down in its third term with difficult/time-consuming constitutional reform," Mr. Ash said.

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Umit Bektas/Reuters

Turkey's Prime Minister, Tayyip Erdogan, with the slogan "we are Turkey together" in the background, greeted his supporters at the AK Party headquarters in Ankara, Turkey, Sunday.

The Turkish lira strengthened to 1.567 against the U.S. dollar in early trading, from 1.572, while the benchmark Feb. 2013 bond yield fell 0.6 percentage point to 8.8% and stocks rose slightly—by 0.06%—before settling back.

But with neighboring Syria melting down and a ballooning current account deficit that continued to expand in data Monday, Mr. Erdogan will quickly face major challenges that had been put off until after the elections, analysts said.

The AKP's nearest rival, the Republican People's Party, won 25.9%, while the third party to make it into parliament, the National Movement Party, or MHP, won 13%, according to unofficial results from the Cihan news agency, working with Turkey's national election board. The Kurdish Peace and Democracy Party, which fields candidates as independents, won 6.6%, Cihan said.

The result confirmed Mr. Erdogan's unrivalled position on Turkey's political scene and created momentum for him to carry through his goal of redrafting the constitution, political analysts said.

Mr. Erdogan could also press to change Turkey into a presidential republic, as he has said he wants to do, although he would now need to secure some support outside his party. Such a move would potentially see him rule this strategically important Muslim nation of 75 million people until 2024, were he to win presidential elections due in 2014 and serve out two terms.

But on Sunday night, as he spoke to a cheering, flag-waving crowd of supporters in Ankara, Mr. Erdogan sought to send out a conciliatory message to the 50% of Turks who voted against him.

"We will be more moderate in the next period," he said, calling on all sides of the political debate to put behind them what had been at times a dirty and violent election campaign. "The nation gave us a message to make a new constitution by consensus."

An AKP victory had been widely expected, not least because the economy grew 8.9% last year in a remarkable recovery from the global downturn. Mr. Erdogan's high international profile, expansive foreign policies and tough stance toward Israel also proved popular among voters.

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Associated Press

An elderly Turkish woman casts her ballot in Yayladagi, Turkey, near the Syrian border.

"The fact that after eight years in power they could win even within a few percentage points of what they gained in 2007 is an extraordinary victory by any standards. This is a landslide," said Soli Ozel, a prominent Turkish columnist and political analyst. The AKP won 47% of the vote in 2007, and 34% in 2002.

The campaign was hard-fought as Mr. Erdogan sought to secure enough votes to give him the 330 seats out of 550 in parliament that he needs to be able to rewrite the constitution without support from other parties, and put it to a popular referendum for approval.

That's a potentially divisive goal in a nation deeply split over the proper role of Islam in society. The potential for political turmoil had worried some investors already concerned that Turkey's economy may be overheating and in need of urgent government action to cool it.

But on Sunday, Mr. Erdogan promised to negotiate the new constitution with opposition parties and to consult with academics and the media. The new constitution would be "built entirely on civil liberties," he said, in apparent response to critics who accuse him of authoritarian tendencies and of crushing press freedoms.

The Cihan agency said the AKP would get 326 seats in the new parliament, while the CHP would 135 seats, the MHP 53 seats and the Kurdish BDP, 35 seats.

Critically, the nationalist MHP made it back into parliament, clearing a 10% threshold. Had the MHP fallen below the threshold, its votes would have been redistributed to the two main parties, putting the AKP comfortably above 330 seats.

On Sunday night, MHP deputy chairman Faruk Bal accused the AKP of "dirty tricks" during the campaign, which he said had affected the result. Ten senior MHP members were forced to resign last month, after sex tapes in which some of them featured were released on the internet. Mr. Erdogan has denied any AKP involvement.

The AKP lost a limited number of votes in Kurdish areas to the Kurdish Peace and Democracy Party, or BDP, likely as a result of Mr. Erdogan's decision to court nationalist voters by taking a harder line on the country's Kurdish problem.

Turkey's constitution remains widely associated with an era of so-called "military tutelage," in which Turkish governments were elected but had limited freedom to act, with the possibility of a further coup always present.

At the same time, several candidates currently awaiting trial on charges of being members of a terrorist conspiracy to topple the government, looked set to get seats in parliament based on the unofficial results, apparently winning a sympathy vote.

The Republican Peoples Party says the trials, which include hundreds of defendants from army generals to journalists, amount to a political witch hunt. Among the defendants who appear to have won parliamentary seats were a journalist and a university professor.

——Yeliz Candemir contributed to this article.

Write to Marc Champion at marc.champion@wsj.com
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