Investors remained sanguine yesterday about the threat of a Turkish retaliation against US sanctions over its invasion of northeast Syria that came a day after the US filed criminal charges against Halkbank.
The currency held up, hovering in a range between TL5.85 and TL5.9 to the dollar despite the risk of escalating tensions and huge fines that could hit Turkey’s state-run bank. Turkish bank stocks were up 3% last night, having dropped 10% the day before as investors said there was little will to see geopolitical escalation between two Nato members.
However, with Turkey’s economy in recession, and its high debt levels, they warned that any move to impose tougher sanctions could be catastrophic.
Yesterday foreign minister Mevlut Cavusoglu told Parliament that Turkey was ready to retaliate, saying that all threats and sanctions against his country were unacceptable. The comments marked a ramping up of tensions between the two countries, and come a day after the US filed criminal charges against Halkbank accusing it of fraud, money laundering and violating US sanctions against Iran.
US president Donald Trump tweeted on Tuesday that the US would stop negotiations on a bilateral trade deal and re-increase steel tariffs on Turkey to 50% — the level they were before a reduction in May.
Buy the dip
Bryan Carter, head of emerging market fixed income at BNP Paribas Asset management, said that there seems little appetite from the geopolitical community to impose harsher sanctions. His funds have been neutral on Turkey this year.
“Turkey is a Nato member, and because of their pivotal role in the region for the Syrian conflict and the refugee issue, investors want to discount or dismiss any rumours,” he said. “People got hyped up by the new sanctions but the Trump tweet had little teeth. It is a buy the dip story — and it has been all year.”
Colin Croft, a fund manager at Jupiter, said the attractive valuations of Turkish equities have also meant that there has been very little selling since the invasion. “There is a sense that the US and Turkey want to keep their relationship. If they sanction Turkey too hard, they risk pushing it away into the orbits of other countries such as Russia, people are looking at this and taking some comfort from this fact.”
But he warned the situation was fluid. “You could come in tomorrow and find a ceasefire or a very serious situation and that might have some economic effect, but the sanctions they have put in place so far haven’t been that tough,” he said. “Were the US to place any restrictions on the banking system, or lending to Turkey, then that would certainly prompt concern.”