Fisher Investments Editorial Staff
Investor Sentiment, Repeatable History

Eyes on Syria and Turkey

By, 06/07/2013

Tensions between the Turkish government and protesters have escalated into violent confrontations in recent weeks. Source: Getty Images.

Middle East tensions intensified Thursday after fighting between Syrian dictator Bashar Al-Assad’s armed forces and rebels breached a key buffer zone between the country and Israel and demonstrations against Turkish Prime Minister Recep Tayyip Erdogan’s authoritarian government escalated. Both situations have become increasingly violent, and some believe they threaten regional stabilization—and, potentially, global stocks. However, history shows conflict and geopolitical unrest typically have only a fleeting, and not necessarily negative, impact on global markets in the mid to long term.

Syria’s civil war has raged for the better part of two years—killing more than 80,000 people in the process. In recent days, vast evidence of war crimes and human rights violations against rebels, dissenters, journalists and foreign aid workers have emerged, exacerbating the conflict. Thursday’s battle between Syrian forces and rebels for a key outpost on the border of Syria and Israel alarmed the international community as it threatened to draw Israel and Hezbollah into the conflict.

Turkey’s troubles are much newer. Throngs of protesters are frustrated with Prime Minister Tayyip Erdogan, who has grown increasingly autocratic. Demonstrations started innocuously, with a small group protesting plans to build a shopping mall over a park in Istanbul’s Taksim Square. But the government’s brutal crackdown on the demonstrators—using water cannons and armored personnel carriers against unarmed civilians—prompted unrest nationwide. The democratically elected Erdogan still carries favor with his party’s supporters, but many Turkish folks are angry over restrictions on alcohol, a clampdown on free speech, Erdogan’s attempts to consolidate power and the overall weakening rule of law.

Needless to say, the situation in both nations—and potentially their neighbors—is terrible for folks on the ground. However, history has overwhelmingly shown global stocks tend to look past geopolitical tensions—especially very localized flare-ups like these.

It’s because stocks, crude as this may sound, are callous—we all want world peace, but that’s not a market driver. Ultimately, stocks move higher as companies’ values increase, and that tends to happen when corporations are profitable—so over time, markets generally move higher or lower based on expectations of future profitability. So the question becomes, how do tensions in Syria and Turkey potentially impact the profitability of companies globally? Likely, not much. Turkey and Syria are tiny fractions of the global economy and capital markets. That’s why global markets have held up ok as tensions have escalated—even as Turkey’s benchmark stock index has pulled back nearly 20% since May 22. Turkish tension is bad for Turkish firms, but so many more variables impact firms globally.

Geopolitical turmoil, however, can impact investor sentiment some—when armed conflict seems likely, folks get scared, and that fear can cause some volatility in the short term. However, as time passes and investors see the broader economic impact of strife is largely muted, confidence returns, and bull markets continue.

Exhibits 1 through 5 show some recent historical examples. In 2011, markets were choppy during the most acute stages of the Arab Spring but trended higher overall. A summer correction interrupted progress when PIIGS troubles spooked investors, but markets were rising again by September and kept marching on—even though unrest continued in the Middle East. Markets were similarly volatile in the run-up to the Israel-Hezbollah conflict in 2006, but a strong rally began well before the conflict subsided. Ditto for the market’s behavior during the Bosnian war from 1992 through 1995, the Iranian revolution in 1979 and the Jordanian civil war in the early 1970s. Stocks are overwhelmingly resilient in the face of geopolitical strife.

Exhibit 1: Arab Spring

Source: St. Louis Federal Reserve


Exhibit 2: Israel-Hezbollah Conflict

Source: St. Louis Federal Reserve


Exhibit 3: Bosnian War

Source: St. Louis Federal Reserve


Exhibit 4: Iranian Revolution

Source: St. Louis Federal Reserve


Exhibit 5: Jordanian Civil War

Source: St. Louis Federal Reserve

Turkish and Syrian people face great uncertainty in the period ahead, but for global stocks, bullish drivers—and there are many—should swamp the impact of likely ongoing regional unrest in the longer term.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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