JP Morgan cuts Türkiye risk as election and dollarization fears rise

By Ahmet Taş | Wise News Press
ISTANBUL, Türkiye — JP Morgan has shifted to a more cautious stance on Türkiye assets, reducing risky exposure and moving its broader Türkiye position to neutral.

According to Karar, the global investment bank said in a strategy note that it had closed risky Türkiye positions, excluding foreign exchange deposit accounts, amid rising concerns over political uncertainty, possible pre-election fiscal stimulus and renewed dollarization pressure. The move follows a similar cautious turn by Algebris Investments, signaling that global investors are reassessing Türkiye risk.

JP Morgan reduces Türkiye exposure

JP Morgan’s decision marks a notable shift in the way global investors are viewing Turkish assets.

The bank reportedly reduced risk exposure and moved to a neutral stance after carrying Türkiye-related positions during a period of renewed foreign investor interest.

Since 2023, Türkiye’s return to more orthodox economic policy, aggressive interest rate increases, simplification steps and efforts to stabilize the lira had helped bring foreign investors back to Turkish assets.

However, JP Morgan’s latest strategy note suggests that the risk-reward balance has become less favorable as political and macroeconomic uncertainties increase.

Election risk becomes a key concern

One of the main risks highlighted in the note is the possibility of elections before the end of the year.

JP Morgan said market participants are not fully ruling out such a scenario. The bank sees an early election timetable as a risk factor because it could affect fiscal policy and domestic investor behavior.

According to the assessment, a possible election period could create two major risks.

The first is the risk of pre-election stimulus measures that could put pressure on public finances. The second is precautionary dollarization, as households and companies may increase demand for foreign currency in response to uncertainty.

These concerns appear to be central to JP Morgan’s decision to scale back Türkiye risk.

Pre-election stimulus worries investors

The possibility of fiscal expansion before an election is one of the most important concerns for investors.

Wage increases, social support programs, credit expansion or higher public spending could support economic activity in the short term. However, such measures could also complicate the fight against inflation and weaken confidence in fiscal discipline.

Türkiye is still dealing with high inflation, and the credibility of the disinflation program depends not only on monetary policy, but also on the consistency of fiscal policy.

For foreign investors, any sign of renewed fiscal loosening before a possible election could raise doubts about the durability of Türkiye’s economic adjustment program.

Dollarization risk returns to the agenda

The second key risk identified by JP Morgan is dollarization.

In periods of political and economic uncertainty, domestic savers and companies in Türkiye often increase their demand for foreign currency. This can make it harder for authorities to maintain exchange rate stability and rebuild confidence in the lira.

JP Morgan’s strategy note reportedly warned that an election scenario could revive precautionary foreign exchange demand among local investors.

The concern is not that dollarization has already surged sharply, but that political uncertainty could make it more likely. For Türkiye’s policy framework, managing expectations remains as important as managing current flows.

Authorities remain committed to currency stability

Despite its more cautious overall stance, JP Morgan also noted that Turkish authorities appear committed to maintaining currency stability.

This view supports the idea that the lira may continue to follow a relatively controlled path through much of the year.

The bank’s strategists reportedly remain tactically optimistic on the Turkish lira in the very short term. This suggests that JP Morgan is not taking a fully negative view on Türkiye or the lira.

Instead, the bank is separating short-term tactical opportunities from longer-term structural exposure. Carry trade returns may still be attractive in the short run, but the broader risk profile now looks more balanced and less compelling.

From optimism to neutrality

JP Morgan’s move to a neutral stance is symbolically important for Türkiye markets.

Foreign investors had become more constructive on Türkiye after the policy shift that followed the 2023 elections. Higher interest rates, efforts to simplify regulation, reserve rebuilding and attempts to stabilize the exchange rate helped rebuild market confidence.

But the latest concerns show that the Türkiye story is entering a more selective phase.

Political risk, early election speculation, inflation, reserves, the budget outlook and dollarization risk are once again being weighed more heavily by global investors.

This does not necessarily mean a broad exit from Türkiye assets, but it shows that investors are becoming more careful about how much risk they want to carry.

Algebris also turned cautious

JP Morgan’s decision comes after Algebris Investments also adopted a more defensive approach toward Türkiye risk.

Algebris reportedly began buying credit default swap protection on Turkish bonds, pointing to risks linked to the current account deficit, low reserves, energy prices and the war involving Iran.

While Algebris focused more on external balances, energy and geopolitical risks, JP Morgan’s concerns centered on election risk, possible fiscal slippage and rising domestic foreign exchange demand.

The two institutions are responding to different risk channels, but both point to the same broader conclusion: global investors are becoming more cautious on Türkiye exposure.

Short-term lira appeal remains

JP Morgan’s position change does not mean the Turkish lira has lost all appeal for international investors.

High local interest rates and controlled currency policy can still support short-term carry trade strategies. For investors with short horizons, lira assets may continue to offer attractive returns if volatility remains contained.

However, the bank’s neutral stance suggests that longer-term exposure now requires more caution.

The distinction matters. Tactical lira trades can remain attractive even when strategic exposure to Türkiye is reduced. This is why JP Morgan’s move should be read as a risk-management decision rather than a complete rejection of Turkish assets.

What it means for Türkiye markets

The shift by JP Morgan may not determine the direction of Turkish markets on its own, but it is an important signal for investor sentiment.

To maintain foreign investor interest, Türkiye will need to show continued commitment to disinflation, fiscal discipline, reserve rebuilding and predictable currency management.

Political clarity will also matter. If election speculation grows, markets may focus more heavily on possible stimulus steps and domestic foreign exchange demand.

For now, JP Morgan’s message is clear: Türkiye assets may still offer opportunities, but the political and macroeconomic risk premium has increased.

Investors will watch policy discipline

The coming months will be important for Türkiye’s market outlook.

Investors will monitor inflation trends, central bank policy, reserve data, fiscal signals, local demand for foreign currency and political developments.

If the authorities preserve policy discipline and keep the lira stable without creating new imbalances, investor confidence could recover. If election-related spending or dollarization pressures increase, foreign investors may become even more defensive.

JP Morgan’s decision to cut risk and move to neutral shows that Türkiye remains on the radar of global investors — but now with more caution, closer monitoring and a stronger focus on political risk.

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