Six ways to profit from Russia’s geopolitical posturing
The situation in Crimea should be closely monitored as it pertains to Europe and the eurozone. Russia is a major trading partner with the eurozone as well, supplying about 40% of the energy requirements in the area. That is why an escalation in Crimea could devastate the region, especially at a time when the economy is finally growing in the eurozone.
I’m carefully watching the stand-off in Crimea and, more importantly, what Russia is doing. Whether it’s simply geopolitical posturing or a plan to enter into Crimea is unclear. The Russians really don’t want a conflict, as it would likely push the country into a recession.
And a recession in Russia would also impact Europe and could drive the region’s economies down. Now, Russia is currently setting up meetings with the United States and United Nations (UN), so there’s some optimism that a peaceful resolution could emerge from the crisis.
The reality is that a healthy Russia also means better times for Eastern Europe, including some of the area’s strongest economic regions, such as Poland.
I view Europe and the eurozone as a potential investment opportunity if the Russia-Ukraine situation is resolved.
The market in Europe and the eurozone is massive and includes more than 800 million people who demand goods and services.
The eurozone’s gross domestic product (GDP) expanded at a rate of 0.3% in the fourth quarter, according to Eurostat. The eurozone is estimated to report GDP growth of 1.2% this year and 1.5% in 2015, according to the International Monetary Fund (IMF). Of course, these numbers could decline if a conflict surfaces in Ukraine.
A look at the chart of the Europe 350 iShares shows the steady rise in stock prices since June 2012. The successive highs and lows point to additional gains above the 50- and 200-day moving averages (MAs).
So while the stock market is fragile and vulnerable in the United States, there are some U.S.-listed investment opportunities in Europe, especially if Russia and Ukraine can settle on a resolution.
Investors may consider playing Europe via an exchange-traded fund (ETF) like the iShares Europe (NYSEArca/IEV) fund.
If you want to invest more specifically in the top European countries, such as Germany, the United Kingdom, and France, you could take a look at ETFs like the iShares MSCI Germany (NYSEArca/EWG), iShares MSCI United Kingdom (NYSEArca/EWU), and iShares MSCI France (NYSEArca/EWQ) funds.
If the Crimea situation clears up, you could also consider playing Russia via the iShares MSCI Russia Capped Index (NYSEArca/ERUS) ETF; or for Russian small-caps exposure, take a look at the Market Vectors Russia Small-Cap ETF (NYSEArca/RSXJ).
by George Leong, B. Comm.