Turkish Markets Surge on PKK Disbandment and US-China Trade Relief

Turkish stocks rallied on Monday, outperforming global peers, as investor sentiment was lifted by two major developments: the disbandment of the PKK militant group and the US-China tariff truce. The Borsa Istanbul benchmark index (BIST 100) soared more than 3%, while Turkish government bonds firmed and the lira strengthened against the euro.

The global risk rally was already underway following a breakthrough in US-China trade negotiations that resulted in a significant reduction in tariffs. However, Turkish equities stood out after local media reported that the Kurdistan Workers’ Party (PKK), designated as a terrorist organization by Turkey and its NATO allies, has officially announced its dissolution after “completing its historic mission.”

PKK Disbandment Seen as Boost to Stability

The announcement, reportedly made through a news agency close to the group, marks the end of a four-decade-long insurgency that has claimed tens of thousands of lives and strained Turkey’s political, economic, and social fabric—especially in the country’s predominantly Kurdish southeast.

Turkish President Recep Tayyip Erdoğan’s party welcomed the move. AK Party spokesperson Ömer Çelik called it “an important step toward a terror-free Turkey.” The development could pave the way for renewed public investment in southeastern provinces, where conflict has hindered economic progress for decades.

The move also follows an appeal from jailed PKK leader Abdullah Öcalan earlier this year, urging the group to disband. Analysts suggest the implications will extend beyond Turkey, potentially influencing regional dynamics in Iraq and Syria, where Kurdish groups have maintained armed forces and in some cases operate in alliance with Western powers.

Financial Markets Respond Positively

Turkish financial assets reacted sharply to the news. The lira rose 1.3% against the euro and remained stable versus the US dollar, while international bonds gained nearly 0.8 cents on the dollar. After a prolonged period of underperformance due to political risk and macroeconomic concerns, the rebound reflects growing investor optimism.

Turkey’s dollar-denominated bonds, including issues maturing in 2030 and 2034, saw renewed interest. These instruments had been under pressure for months due to reserve depletion and rising geopolitical tensions.

The BIST 100 index benefited not only from the domestic security development but also from the global upswing. Technology, industrials, and banking stocks led the gains as investors sought higher-yielding assets in emerging markets.

Analysts Cautious Amid Broader Concerns

While the market reaction was broadly positive, analysts warned against premature optimism. Christopher Granville, Managing Director for EMEA and Global Political Research at TS Lombard, said the PKK’s dissolution is undoubtedly “good news” but remains a “secondary factor” when compared to Turkey’s macroeconomic trajectory and political risks.

“The real test for investors lies in Turkey’s broader policy direction,” Granville noted, referring to the detention of Istanbul Mayor Ekrem İmamoğlu, who is widely seen as Erdoğan’s most viable political challenger.

He added that structural reforms, fiscal credibility, and institutional independence remain at the forefront of investor concerns. “Unless these issues are addressed, positive geopolitical headlines can only go so far in restoring investor confidence,” Granville said.

Outlook: What Comes Next?

The disbandment of the PKK could offer a much-needed opening for reconciliation and development in Turkey’s southeast. If followed by meaningful economic initiatives and inclusive political dialogue, it may help reduce domestic tensions and enhance Turkey’s appeal to global investors.

However, the sustainability of Monday’s rally depends on more than geopolitics. Investors will be closely watching the upcoming inflation report, reserve data, and any signs of policy continuity from the central bank. The broader macroeconomic environment—especially fiscal performance and exchange rate management—will determine whether the recent gains can be consolidated.

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