21.10.2019 – Special Report. The dead live longer: Although US President Donald Trump Ankara has threatened Ankara to destroy the Turkish economy because of the invasion of Northern Syria, the lira is surprisingly robust. The reason for this, apart from lax US sanctions and the inactivity of Europe, is probably the support of the People’s Republic of China. The diplomatic offensive of the Chinese has potential effects on yuan, gold or oil.
Lira relatively robust
The relative strength of the lira is astonishing given the weakness of the currency previously shown. Between February and May, the Turkish lira slipped from 5.2 against the US dollar to 6.2. USDTYR has now recovered to 5.82 dollars.
And there is little sign of chaos in the currency market, even though the central bank has helped by putting pressure on the commercial banks not to lend money to short traders. Although the Turkish stock market has recently gone through some turbulence, it is still not the case that it has been. But the turmoil in the ISE 100 was mainly due to the American investigations against the Turkish Halbank, which is said to have undermined Iran’s sanctions.
China swapsfor Turkey
What probably contributes to lira stabilization is China’s intervention. As Bloomberg reported in early August, the Chinese central bank had transferred assets worth the equivalent of 1 billion dollars to Turkey in June. The investment was the highest to date under a 2012 lira-yuan swap agreement, according to an insider.
Belt and Road – China’s new Silk Road
China is also investing heavily directly in Turkey, as reported by the Nikkei Asian Review in August last year. Beijing is building a new silk road, which also includes Iran. According to “Nikkei”, China promised commitments amounting to the equivalent of 3.6 billion dollars in Turkey. Specifically, the state-owned Commercial Bank of China is to lend 2.4 billion for the expansion of roads and bridges. And another 1.2 billion dollars for the construction of gas storage facilities on the coast. The money is gradually reaching the Turkish economy.
Yuan short – Lira long
The deals are to be conducted directly in yuan and lira, bypassing the dollar. In other words: China supplies yuan, which the Turkish state sells for lira. This fits in with the downward trend of the internationally traded renminbi – and at the same time with China’s strategy of weakening its domestic currency in order to boost exports in the customs dispute with the USA. Ankara would also have achieved its goal of supporting the lira. If the Chinese private sector’s involvement continues, this will further stabilise the Turkish economy – see, for example, Alibaba and Trendyol (share purchase of 730 million dollars), the joint venture of Turkish Airlines with ZTO Express, the Chinese smartphone manufacturer ZTE and the purchase of Netas.
Dollar and ruble short – Gold long
Another consequence is the de-dollarization. Russia has already shown the way and has sold off US government bonds on a large scale. China could follow suit. And both countries – just like Turkey – are buying more gold. Russia, just like China – in contrast to Turkey – is banking on a devaluation of its own currency and, in view of the increased armament efforts and international military engagements like now in Syria, is likely to put further pressure on the ruble.
The new regional order
For China, Turkey’s support is also a means of keeping the approximately 300 million people of Turkish origin at its border quiet. Ankara likes to play the patron saint of the Turkic peoples of Central Asia, but since development aid began, it has taken a much more moderate stance on the question of the Chinese Uighurs. Conversely, China is of course now silent on Turkey’s intervention in northern Syria.
This is the new mixture: Russia, Syria, China and Iran are de facto allies. Turkey is approaching this bloc. As always, Europe is watching the bloody hustle and bustle on its own doorstep, outraged and blaming America for everything. Under Donald Trump, the USA is pursuing an increasingly isolationist course, withdrawing from endless regional conflicts and supporting only the closest allies, such as Israel and Saudi Arabia.
Shares and oillong
Paradoxically, the possible consequences for the global economy of this ice-cold realpolitik are positive. As the Cold War has shown, clearly divided blocs bring stability. If the US doesn’t squander money on armaments, the economy will recover, as Bill Clinton’s balanced budget showed after the collapse of communism – which Wall Street was pleased to see. In other words, if the spheres of influence are respected and the economy grows, then this tends to be good for the stock markets. And also for the price of oil.
Prosperity and peace for all time? Hardly. The unknowns in this equation: a new turn in US foreign policy, for instance among democrats, towards interventionism. And Iran’s disruptive manoeuvring, which is pushing for the oil market.
In addition, the population explosion prevents stability. For Turkey, this means that the Kurdish uprising should continue to simmer. As the “Asia Times” stated with reference to Turkstat’s figures from 2015, the birth rate in the Kurdish regions remains high, while it is declining among the Turks. The numberofweddingsisno different.
However, these long-term geostrategic movements you need to know when trading CFD and online stocks. The Bernstein Bank wishes you successful trades!
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