Turkey’s Geopolitical Pivot: How PKK Disbandment Unlocks a New Era of Growth

The Kurdistan Workers’ Party (PKK)’s formal disbandment on May 7, 2025, marks a historic turning point for Turkey. After four decades of conflict, this decision—a direct outcome of Abdullah Öcalan’s directive from prison—has eliminated a core source of regional instability. The geopolitical risk premium that has long weighed on Turkish assets is now dissipating, creating a once-in-a-generation opportunity to capitalize on undervalued equities, infrastructure projects, and long-term bonds. For investors, this is a moment to act decisively.

Military Spending Cuts: Capital Reallocation to Growth

The immediate economic upside begins with Turkey’s military budget, which could shrink by 15–20% as counterinsurgency operations wind down. Historically, defense spending has absorbed 1.5–2% of GDP. Redirecting this capital toward infrastructure, energy, and technology projects could supercharge GDP growth. A shows this reallocation in motion, with funds now flowing into sectors like hydropower and transportation.

FDI Inflows: A 20–30% Surge in Capital

The disbandment has already triggered diplomatic overtures from the EU and U.S., with conditional aid and FDI expected to rise sharply. Sectors like energy (e.g., hydropower in the southeast), construction (rebuilding cities like Diyarbakır), and tech (data centers near Ankara) stand to benefit most. A underscores this shift. Multinationals are already circling: Siemens Energy has expressed interest in solar projects, while Vinci is eyeing toll-road concessions.

Equity Markets: Banks and Industrials Lead the Rally

Turkish equities, particularly in financials and industrials, are poised for a comeback. Banks like Türkiye Halk Bankası (TMB) and Yapı Kredi (YAPK) have underperformed peers due to geopolitical risks and currency volatility. With reduced military spending, their loan portfolios to infrastructure projects will strengthen, while lower political uncertainty boosts lending margins. Meanwhile, industrials such as Sıtkı Kalyon (SISE) (construction) and Doğan Holding (DOGAN) (transportation) will benefit from FDI-fueled demand. A highlights Turkey’s lagging performance—and potential upside.

Bonds: Long-Term Value in a Low-Yield World

Turkish government bonds offer compelling value. The 10-year yield, still elevated at 9.5%, reflects lingering risk aversion. As geopolitical tensions fade, this spread to German bunds will narrow, rewarding investors in long-dated maturities. A illustrates this compression opportunity.

Risks? Yes—but Manageable

Splinter groups or regional spillover (e.g., Syria’s Kurdish autonomy debates) could reignite tensions. However, the PKK’s formal dissolution and Öcalan’s authority ensure most factions will comply. Turkey’s intelligence agencies are also monitoring hotspots closely. While geopolitical volatility persists, the macro trajectory is clear: a $400 billion infrastructure pipeline and EU-U.S. backing will dominate the narrative.

Conclusion: The Clock Is Ticking

The PKK’s disbandment has removed Turkey’s largest overhang. With capital reallocation, FDI inflows, and pent-up demand in sectors like construction and energy, this is a buy signal for equities and bonds. The BIST 100, trading at a 30% discount to emerging-market peers, offers asymmetric upside. For investors seeking growth in a slowing global economy, Turkey’s recovery is no longer a distant hope—it’s a tangible reality. Act now, before the world catches on.

Investment Thesis:
- Equities: Overweight banks (TMB, YAPK), industrials (SISE, DOGAN).
- Bonds: Buy 10-year Turkish government debt.
- Sectors: Focus on infrastructure, energy, and tech.

The time to seize Turkey’s transformation is now.