EEMEA | Emerging Markets | Politics & Geopolitics
Although we have been very concerned about Turkey and the negative Turkish lira since June 2018, we are not particularly alarmed by the latest developments in Syria and do not expect a significant escalation of events that might heighten tensions in the region….
This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.
Although we have been very concerned about Turkey and the negative Turkish lira since June 2018, we are not particularly alarmed by the latest developments in Syria and do not expect a significant escalation of events that might heighten tensions in the region.
There are two deterrents in our view. The first includes threats of economic sanctions from the US and EU. However, given that Trump gave Erdogan the nod, since he wanted to extract all forces from the region, the US sanctions are unlikely to be severe. Similarly, the EU will also ‘hold its punches’ because Erdogan keeps the keys to 3.6 million Syrian refugees which could open the floodgates of EU nationalism and threaten the stability of the whole EU project. The second deterrent (in our view, the real one) is Putin. He is more likely to find a compromised solution between the two countries.
Putin has been able to claw his way back into geopolitics in general and the Middle East in particular because of US disengagement, but also the long-term relationships he faithfully maintains. Like him or loath him, he has stayed as loyal to Syria as he has to Iran. The same cannot be said of the US: from Operation Cyclone in Afghanistan, to Hussein, Gaddafi, Mubarak, and now the Kurds – alliances change, relationships fold.
Yet the blame lies not only on Trump for reneging on the relationship with the Kurds; it was obvious from the outset under Obama that this relationship would end poorly. Erdogan is capturing this opportunity like Putin did with Crimea five years ago.
Unfortunately, the UK and EU avoided involvement in Syria despite Cameron and Sarkozy’s attempts at the time. With the US stepping back and Russia filling in the geopolitical space, will the EU consider taking a greater global leadership role and ownership of some of the ‘harder’ issues? Or will it stick to just the ‘softer issues’ of global tax and climate change?
We maintain our Negative outlook on the Turkish lira albeit not due to the latest geopolitical developments with Syria, which we believe will not escalate as per our analysis above. Instead, we continue to worry about the independence of the Central Bank and Erdogan’s unorthodox economic views, which for political expediency could hit the currency further.
Thanos Papasavvas, CFA, is the Founder and CIO at ABP Invest.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)