Turkish Assets Fall as Erdogan Readies Incursion Into Syria

The lira took a hit as investors braced for a Turkish military operation in northern Syria.

The currency weakened as much as 1.1% to breach 5.75 against the dollar. It pared losses to 0.8%, trading at 5.7458 as of 11:31 a.m. in Istanbul, still leading declines among emerging-market currencies. The Borsa Istanbul 100 Index was down 0.3% after sliding 0.9% earlier.

The U.S. said late Sunday its military will stand aside when Turkish troops enter Syria, possibly in the coming days. That signals it will allow Turkey to advance against Kurdish forces who have been American allies fighting against Islamic State.

“Military action is imminent,” said Cristian Maggio, head of emerging-market strategy at TD Securities in London. “‘There will be hardly any good for markets from a Syria campaign. So the choice is between very bad, and neutral to bad.”

Turkey has for months vowed to remove Kurdish forces along its southern border and create a buffer zone inside Syria. President Recep Tayyip Erdogan said Monday that U.S. soldiers have started withdrawing from northern Syria.

Turkey Boosts Syria Border Troops as Erdogan Flags Incursion

Given that Erdogan has spoken about his plans for Syria for some time, “the White House statement is not a major surprise,” said Nigel Rendell, an analyst at Medley Global Advisors in London. “It largely confirms what many suspected, that Donald Trump has grown weary of Syria and is leaving it up to Turkey to find a longer term solution.”

Still, most investors were taken aback by the turn of events over the weekend.

“With U.S. leaving the arena to Turkey, it’s also leaving Turkey to bear the costs and the responsibility alone,” said Burak Demircioglu, head of International Capital Markets at Yatirim Finansman in Istanbul. “The market may be jittery until there is some clarity after Turkey’s incursion.”