THE VICTORY of Recep Tayyip Erdogan, Turkey’s president, in a referendum on April 16th is seen by many observers as a worrying step on the road to autocracy. The vote handed Mr Erdogan far-reaching new powers. But the Turkish lira, government bonds and stockmarket all gained ground as the results came in.
It was a reminder that the relationship between markets and democracy is not rock-solid. Like an errant husband, investors may proclaim their fidelity to democracy but are not averse to seeing someone else on the side.
In Turkey investors may have feared turmoil if Mr Erdogan’s proposal had been defeated. It is an old, but fairly reliable, rule that investors dislike uncertainty. And the early years of Mr Erdogan’s tenure, when he was seen as a liberalising democrat, saw rapid economic growth; his transformation into an emerging autocrat has not put investors off. Since he took office, the Istanbul market has gained 760% (see chart).
An authoritarian government can provide certainty, at least in the short term. In 1922, when Mussolini took power in Italy, its equity market returned 29% and its government bonds 18%, according to…Continue reading