Crimea Will Roil Global Stock Markets

crimea

The citizens of Crimea have spoken from the ballot box. They overwhelmingly voted in favor of coupling with Russia and dumping the Ukraine by more than 95 percent in a referendum Sunday. The Crimea peoples’ decision will roil the global stock markets for the foreseeable future as the international community from the east to the west condemned it from the get go. Western countries are threatening Russia with sanctions if it refuses to back down from taking over the Crimea, a region within the Ukraine with an ethnic Russian majority.

“As Russia continues to encroach on Crimea, expect equity markets around the world to take a step back and bond yields to fall,” Harry Dent, an economist and founder of Dent Research in Delray, Beach, Fla. “People will fly to safety for a few days at least. Then it will be back to normal. Whatever that is.”

Russia faces economic sanctions from the US and Europe as early as Monday. Sanctions will be bruising to both sides, says Bill Witherell, chief global economist at Cumberland Advisors in Sarasota, Fla. with $2.3 billion in assets under management. Russia is a key energy supplier to Europe. It has threatened to cut gas supplies to Ukraine, contending Ukraine owes it $1.9 billion in unpaid gas bills. U.S. blue-chip companies such as Citibank (C) and Exxon Mobil (XOM) have a large presence in Russia.

The current conflict between Russia and the US is easily the worst since the Cold War. In times of geopolitical uncertainty, the market has historically sold off such as after 9/11.

“This is a dangerous time to be either long or short the U.S. markets as the entire situation now appears to be news-driven and extremely volatile,” said Janice Dorn, M.D., Ph.D., a Phoenix, Ariz.-based gold trader and author of Mind, Money & Markets. “Traders will be watching every utterance very closely this coming week. Volatility is back. It can be a trader’s dream and turn just as quickly into a nightmare.”

“The global situation is hanging in the balance right now with the Urkaine/Crimea situation and the possibility of a hijacking of the Malaysian airline with fears of preparation for another terrorist attack,” Dorn added.

Russia has reportedly dumped $105 billion in US Treasury bonds on expectations of financial sanctions, knowing that the conflict in Crimea will roil the global stock markets. The punishments include asset freezes and confiscations. Russian companies with major overseas operations have reportedly pulled out billions in holdings from western banks. Likewise, western firms with operations in Russia are reportedly dumping Russian bonds and retracting their holdings from Russian banks as precaution.

In addition, the market is contending with news of North Korea firing 10 rockets toward the Sea of Japan, the first Federal Reserve meeting with Janet Yellen at the helm and a batch of key US economic reports in the week ahead. Gold futures vaulted to their highest levels in more than six months on safe-haven buying Sunday.

Russia’s stock market, as tracked by the Market Vectors Russia ETF (RSX), crashed 17% in one month, deepening its year to date loss to 24%. It has tumbled 22% in the past 22 months and an average of 16% annually the past three years. On a five-year basis, it has returned 12% annually.

The U.S. stock market has been flat year to date but trades near historic highs. After booking a 32 return last year, investors do not need much reason to take their profits and run. Investors best fasten their seatbelts for week ahead as the Ukraine-Russian conflict over the Crimea will roil the global stock market that was already fragile without it.

By Trang Ho

Sources:
Harry Dent, founder of Dent Research (report)
Janice Dorn, M.D.,Ph.D., author of Mind, Money & Markets
Citywire Wealth Manager
Reuters
Zero Hedge 
Bill Witherell, chief global economist at Cumberland Advisors

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