It would also mean Erdogan is likely to run for president, according to Wolfango Piccoli, managing director at Teneo Intelligence. This would be the first direct elections for Turkey's head of state and Erdogan would replace incumbent Abdullah Gul in the summer. The knock-on effect might be that the moderate and more market-friendly Gul would swap with Erdogen and assume the premiership, according to Nicholas Spiro, the managing director of Spiro Sovereign Strategy.
A contrarian view comes from analysts at Bank of America Merrill Lynch. They believe that markets have become too complacent over Sunday's elections and expect a strong result for Erdogan would make him stay as prime minister,
"Although we believe a stronger AKP performance will empower PM Erdogan and may pave the way for the government to make more controversial decisions that eventually could increase the political risk premium, market pricing seems to disagree with us," a fixed income strategy team at the bank, led by Alberto Ades, said in a note on Thursday.
Below 40 percent
On the other end of the scale, analysts warn that any alternative election outcome could cause Turkish assets to suffer. Spiro said that a poor showing for the AKP, and in particularly a loss in Istanbul, would inject yet more instability and possibly lead to a snap parliamentary election this year.
"Erdogan is going out of his way to test the resilience of Turkey's creditworthiness at a particularly dangerous time for EMs. Irrespective of the outcome of Sunday's election, the spectre of more Gezi Park-type unrest looms," he warned in a research note on Wednesday.
Piccoli agrees, suggesting that less than 39 percent share of the votes in the municipal polls would increase the risk of snap elections and would leave a weak majority of 60 percent in any future parliament.
Follow us on Twitter: @CNBCWorld