Dont really know what this whole Ukraine thing is all about? Lets take a brief look at some background and implications for the trader.
First, some backstory. Ukraine has been the story of two mindsets for a long time. One side sees the countrys future to the west, in Europe, while the other wants to stake the countrys future on its eastern neighborRussia.
Civil unrest started when the countrys parliament, led by Viktor Yanukovych, rejected a deal with the west in favor of quick cash from Russia.
Recent events sawYanukovychousted, a new government installed, andYanukovychgoing into hiding in Russia while still claiming to be in power.
But the story isn't so much the Ukrainian civil strife; its the fact that Russia is posturing its military. The United States warned Russia not to get involved, setting off memories of the Cold War days. This has caused political destabilization in the region as well as financial destabilization in markets around the world.
What does this mean for investors?
Ukraine is more important than people think.
Ukraine is Europes version of Iowa. It holds what some people call the best crop-growing land in the world. Its also home to a healthy amount of oil and natural gas production. One of the reasons Russia is involved is because state-owned natural gas production companies are located in Ukraine.
Short term turmoil? Yes!
Investors dont like when the White House issues threatening statements and they dont like when countries the size of Russia posture up their military. It causes turmoil in the markets.
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But dont expect long-term impacts. Of course, the loss of any lives is always significant but this isnt an event likely to put an end to the U.S. bull market.
Russian Stocks could get even cheaper.
The Russian market trades at about five-times forward earnings. In contrast, world stocks trade at 14 times and U.S. stocks trade at 17 times. Russian stocks are already in the bargain bin. This conflict is sending them even lower. This could be a buying opportunity.
Theres an ETF for that.
If you want to play Russia and dont want to figure out individual stocks or how to play its market, go for the Market Vectors Russia ETF (NYSE:RSX). If youre a short-term trader, short it for now but value investors should buy on the dips.
Not a long-term play.
Russia and Ukraine may be in the news right now, but making Russia a long-term part of your portfolio comes with plenty of problems. Some believe that theres a lot of corruption in the countrys financial market and reliable information is hard to find. For longer-term traders, there might be more reliable international investments.
Disclosure: At the time of this writing, Tim Parker had no position in the ETF mentioned.
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