Ukraine Unrest Rattling ETFs (RSX, EPOL, ESR)
The situation in the Ukraine was overlooked by investors last week as the S&P 500 was able to continue its bull market and finished at a new all-time high.
The news over the weekend that Russia will use military force has changed the landscape of the way investors view the unrest in the country and stocks around the world opened lower on Monday.
The Russian stock market was down as much as 10 percent at one point and the stock markets in the region also experienced severe selling. Europe’s largest economy, Germany, saw its stock market fall by three percent as fears of a military conflict increased.
The Market Vectors Russia ETF (NYSE: RSX) opened the week down 10 percent and an immediate bounce has the ETF down eight percent in the early trading hours. The ETF is a basket of 48 stocks with a heavy concentration on the energy sector (42 percent). The materials, telecom, and financials make up another 41 percent of the portfolio. The big concern for the Russian stocks is that sanctions from other countries and organizations around the world could cause damage to corporate profits.
The ETF is already in the midst of a sell-off that began last October when RSX rallied has high as $30 per share. This morning the ETF hit a low of $22.16, easily pushing it further into bear market territory and to its lowest level since July 2009. There is some support on the chart at the $18 area, but until the situation begins to show some positive signs it will be an aggressive move to try and catch this falling knife.
Another Eastern European country, Poland, is also falling sharply this morning with the iShares MSCI Poland Investable ETF (NYSE: EPOL) down five percent. The combination of proximity to the Ukraine and the high possibility that the country could in some way get involved has the ETF falling from a multi-month high set last week.
The iShares MSCI Emerging Markets Eastern Europe Index (NYSE: ESR)is down eight percent on heavy volume. Russian stocks make up 71 percent of the portfolio, followed by 23 percent in Poland. The energy and financial stocks, both of which are getting hit hard today, account for 70 percent of the entire ETF.
The bottom line here is that investors are reacting to the news out of the region over the weekend. There is also a cloud of uncertainty as to what the role of the U.S. will be in the coming days/weeks. The combo of uncertainty and the influx of dire news over the weekend will keep pressure on Russian stocks for the foreseeable future.
But just as it was in Egypt a few years ago, a buying opportunity is highly likely at some point in the future. The big question is timing; when will the related ETFs fall to a price that makes them an attractive long-term investment option?
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