Puttin' on the Putin Trade
03/14/2014 7:00 am EST
Putin’s antics in Crimea presents danger and opportunity, says John Nyaradi of Wall Street Sector Selector, as he offers a few trade ideas based on the crisis du jour in Europe.
Vladimir Putin and his moves in Crimea are being closely watched by investors who can spot the profit potential resulting from outrageous decisions by the world’s leaders. In this case, the former KGB agent’s efforts to bring Crimea back under Russian sovereignty are sparking international efforts for an economic counter-punch.
Putin’s forces have taken control of Crimea’s local parliament and have scheduled a referendum on whether to secede from the Ukraine and join the Russian Federation.
The consequences for the Russian economy are already taking their toll. The Russian Central Bank was forced to raise interest rates by 1.5% to 7%. The exchange rate for the ruble sank to approximately 50 per euro. Imports are quickly fading out of reach for Russian citizens and as economic conditions continue to deteriorate, more economic chaos in Russia will likely follow.
Just one day after Putin sent his tanks into the Ukraine on Friday, the leader learned that February’s HSBC Russia Manufacturing PMI remained in contraction for the fourth consecutive month, with a reading of 48.5—its second-lowest since July of 2009. January’s reading of 48.0 was the lowest since that point. Russia’s PMI has been in the contractionary range (below 50) for seven of the eight past months.
Putin’s antics will surely cause Russia’s other economic indicators to sink. As a result, now might be a good time to consider the Direxion Daily Russia Bear 3x Shares ETF (RUSS). This ETF is designed to obtain daily investment results, which represent 300% of the inverse of the performance of the Market Vectors Russia Index. The Market Vectors Russia Index is intended to represent the overall performance of publically traded companies that are domiciled and primarily listed on an exchange in Russia or that are not Russian companies, but nonetheless generate at least 50% of their revenues in Russia.
If leveraged, inverse ETFs do not suit your investing style, you could also consider taking a long or short bet on one of the many Russia ETFs which are available. Here is a list of some of the more heavily-traded (at least 50,000 shares per day) Russia ETFs:
Market Vectors Russia ETF (RSX): This ETF is designed to obtain investment results, which replicate the performance of the Market Vectors Russia Index. RSX invests at least 80% of its assets in securities, which are components of the Market Vectors Russia Index.
iShares MSCI Russia Capped Index ETF (ERUS): This ETF is designed to track the performance of the MSCI Russia 25/50 Index, which is a free float-adjusted market capitalization-weighted index designed to measure the performance of equity securities listed on stock exchanges in Russia.
SPDR Russia S&P ETF (RBL): This ETF is designed to track the performance of S&P Russia Capped BMI Index. The S&P Russia Capped BMI Index is a float-adjusted market capitalization index designed to define and measure the investable universe of publicly-traded companies domiciled in Russia. On Thursday, RBL declined 1.41% to $22.61 per share.
Currency traders could take a look at the USD/RUB pair in hopes of taking advantage of potential declines that the ruble may yet make against the dollar.
Bottom line: From the looks of things, the excitement in Crimea might be far from over. Major geopolitical events like the current Russian gambit into Crimea almost always generate significant swings in global financial asset classes and such swings can also offer fast moving profit opportunities for investors with well-thought-out trading and risk management plans.
By John Nyaradi, Publisher, Wall Street Sector Selector