A decisive win for Turkey's main opposition party in a re-run of a mayoral election in Istanbul this weekend has dealt a big political blow to President Recep Tayyip Erdogan and prompted hopes for economic and political change. Ekrem Imamoglu, the candidate for the main opposition Republican People's Party (CHP), won 54% of the vote, Turkey's Anadolu news agency reported, while Binali Yildirim, the candidate for Erdogan's ruling Justice and Development Party (AKP), received around 45% of the vote. Investors have reacted positively to the election result with the Turkish lira strengthening to 5.7333 against the dollar Monday, up from a close of 5.8140 Friday. Turkey's BIST 100 stock index was trading higher around 2% Monday with Turkish banks the top gainers on the index. The mayoral election was a re-run of an earlier vote in March that Imamoglu had won narrowly. That result was annulled by the electoral authorities and a new vote ordered after the AKP complained of irregularities during the ballot, however. The decision to annul the first election prompted an outcry and in the re-run vote on Sunday, Imamoglu won by a wider margin than before. Addressing crowds of jubilant supporters in Istanbul on Sunday, Imamoglu said "In this city today, you have fixed democracy. Thank you, Istanbul," Reuters reported, pledging to build democracy and justice in the Turkish capital.

"It's a huge seat of power. Ankara is the capital but Istanbul is really the heart of Turkey and certainly of Turkish politics," Cailin Birch, global economist at the Economist Intelligence Unit, told CNBC. "The president's share of the vote has gone down steadily, not dramatically, but steadily in recent elections and the state of the economy is, at this point, quite risky so we're seeing the AKP party and Erdogan struggling to keep the same hold on Turkish politics that they were able to in the past." Turkish President Recep Tayyip Erdogan congratulated Imamoglu on the result but it is a blow to the strongman president who has led the country as prime minister and then president since 2003. Erdogan was also mayor of Istanbul from 1994 to 1998. Turkey experienced an economic boom in the early days of Erdogan's premiership although that period of rampant growth has long-since dwindled and the country has seen economic and political turbulence in recent years. This period of uncertainty has ranged from an attempted coup against Erdogan and criticism of his increasingly authoritarian rule to a lira currency crisis in 2018 and public battles between Erdogan and the central bank over policy to tackle high inflation, currently of around 19%. Turkey faces pressure on the international stage too with the U.S. threatening sanctions for its decision to purchase Russia's S-400 missile defense system.

Market rallies, what's next?