Financial market risks in the Russian crisis


Tensions and ETF movements… As the markets watch the Russian assets shake as tensions between Russia and Ukraine escalate, the largest exchange-traded fund tracking Russian stocks has seen its biggest cash injection in more than a year. It is stated that this situation may not be a bullish signal, but rather a precursor to a short sale.


The effect of volatility, strategic positioning… In addition to the volatility in the markets, the increasing geopolitical risks on a global scale, as well as the tightening risks in the financial conditions, which increased before the FOMC meeting, also increase the uneasiness in terms of risky assets. In this context, deep sales were observed in the markets directly related to risk. But judging by the front-loading movements in mutual funds, the Russian ETF (RSX) saw $70 million in inflows last week. It is suspected that in these circumstances it may be a buy to sell rather than a reliable entry, as Russia’s assets are shaken by escalating tensions between Moscow and the West. Or, a strategic positioning may be being made to provide some trade advantages in a sea of ​​possibilities.


Russia’s massing of troops on the Ukrainian border is considered one of the main threats to global markets. The US recalled embassy officials in Ukraine, considering the possibility of war. A hot conflict is still a low probability, but I think the situation will be evaluated in this light: If Russia starts to invade Ukraine, the story will turn into trouble. An extreme situation can be mentioned if NATO intervention comes into play, with a wide spectrum ranging from cessation of gas flows to financial sanctions. However, the phenomenon we still call nuclear shows that the great powers will stay away from direct conflict, but that the work can be done indirectly through weapons, defense vehicles or logistical aid. Still, the occupation scenario would mean selling for the markets.


In the event that Russia and the USA make a temporary agreement that preserves the status quo, the situation may provide a buying opportunity. The cheapening of Russian stocks with the recent depreciation may create a potential to be realized. Of course, in the geopolitical climate, there are many conflicting scenarios, so it is difficult to make a clear prediction. Market players like this type of bet.


Conclusion? Oil is a very strategic driving force and an economic weapon. In terms of many countries, a commodity and political crisis that cannot be ignored in terms of the general current account balance and inflation components is in a place that will directly affect these prices. At this stage, ambiguous market movements such as selling to buy or buying to sell may expose you to serious investment risks in terms of the carrot it spawns. Something similar happens with the strategic positioning of markets.

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