Lira, rupee at forefront as Syria tension pounds emerging assets

Wed Aug 28, 2013 1:20pm EDT
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By Sujata Rao

LONDON (Reuters) - Emerging stocks, bonds and currencies took another hammering on Wednesday as mounting expectations of Western action against Syria pushed up oil prices and drove investors to seek shelter in dollar assets.

The United States and its allies appeared to be gearing up for a military strike against Syria, perhaps within days, as punishment for last week's chemical weapons attacks which they have blamed on President Bashar al-Assad's government.

The Turkish lira and the Indian rupee - already under heavy pressure due to their large current account deficits and an imminent rollback in U.S. money printing - were at the forefront of selling, with both hitting new record lows as oil prices surged to six-month highs above $117 a barrel.

The higher cost of oil will make it even more difficult for the two energy importers to contain their current account gaps.

"Syria is raising the level of uncertainty and those closest to Syria such as Turkey will be on the receiving end of the selling," said Ashok Shah, CIO of asset manager London & Capital. "It's another round of bad news."

"In (energy-importing) countries such as India, if you look at the oil price in rupees you can see how they are getting impacted - it's a double whammy for them."

The rupee tumbled 3.6 percent to 68.80 per dollar, its biggest one-day fall in 18 years, bringing 2013 losses to 20 percent. The lira fell 1.6 percent, while Turkish credit default swaps inched to new 14-month peaks.

The Syrian crisis has aggravated a selloff in emerging market assets that was triggered by expectations the U.S. Federal Reserve will start scaling back its massive stimulus program, as soon as next month.   Continued...

Turkish lira banknotes are seen in this picture illustration taken in Istanbul October 18, 2011. REUTERS/Murad Sezer