George Soros’ Billion-Dollar Bet on Ukraine: How to Profit with ETFs

George Soros Billion-Dollar Bet UkraineGeorge Soros, the legendary hedge fund manager, insists that Ukraine deserves the same attention as Greece received from the European Union (EU). In fact, according to a recent statement, George Soros may invest up to $1.0 billion into war-stricken Ukraine. And for those in the same mindset as Soros, emerging Europe exchange-traded funds (ETFs) may be your answer (but more on that a little later).

George Soros and the Crisis in Ukraine

Soros warns that Ukraine’s new boss is starting to look an awful lot like the old one. Ukraine is falling into the hands of Russian-led destabilization and Ukrainian oligarchs of old. (Source: Project Syndicate, March 30, 2015.) Ukraine teeters on the edge as its European neighbors sit on their hands. Soros warns that this is dangerous for the entire eurozone.

A last-minute meeting between French, German, and Russian heads of state and Ukrainian President Poroshenko brought a ceasefire in early February. However, Kiev is in desperate need of more financial assistance. Ukraine’s currency, the hryvnia, has fallen more than 40% since April of 2014, eliminating confidence in Ukrainian banks and squeezing companies with debts in U.S. dollars and euros.

Ukraine and the International Monetary Fund

George Soros highlights that in 2011, Greece received 240 billion euros from its peers, whereas Ukraine, to date, has secured only limited support from the International Monetary Fund (IMF). On March 12, 2015, the IMF approved another 15 billion euros for Ukraine to fill government coffers and support economic reforms undertaken by the new government. (Source: International Monetary Fund, March 11, 2015.)

Ukrainian authorities have pushed through sizable energy tariff increases, commenced bank restructuring, and implemented reforms of state-owned enterprises. The IMF Extended Fund Facility will be put towards the reform agenda, along with a severely depressed economy. (Source: Ibid.)

Real gross domestic product (GDP) is expected to drop 5.5% in 2015 and inflation is expected to hit 28%. (Source: International Monetary Fund, March 12, 2015.) Funding from the IMF will be crucial to Ukraine, as the country will have to pay off an ever-growing amount of external debt. Debt balances as a percentage of GDP averaged 78% in 2013 and are forecast to hit 160% in 2015. (Source: Ibid.)

Soros to Invest In Ukraine

George Soros has been quoted as saying he’ll pledge $1.0 billion if more support is given to private investors to mitigate political risk and increase the attractiveness of the investment opportunity. The hedge fund pioneer is keen on putting money to work in the region, but strongly believes the international community is not doing enough. (Source: Reuters, March 30, 2015.) Soros Fund Management, the hedge that Mr. Soros founded in 1969, would be looking to take advantage of opportunities in agriculture, energy, and infrastructure projects.

George Soros clearly understands the importance of Ukraine to Europe. If Europe loses Greece and fails to stabilize a neighbor—Ukraine—confidence in the European Union will be severely tested. Let’s not forget that Mr. Soros has a keen eye for opportunity and may be more optimistic on the future of Ukraine and the greater region (given that he’s pondering an investment) than he lets on.

Emerging Europe ETFs

Those looking to make the same bet as Mr. Soros could consider emerging Europe ETFs. These ETFs are likely your only alternative, as gaining direct access to Ukraine’s mere $50.0-billion stock market is challenging. Another reason to look at emerging Europe investments is that several of these markets have underperformed as of late due to their proximity to and perceived association with the Russia-Ukraine conflict.

For example, the Central European Equity Fund (NYSE/CEE). is off 25% since the start of 2014, whereas the iShares Europe ETF (NYSE/IEV), a broader European index, is up five percent in the same period. The Central European Equity Fund has a 45% weighting in Turkey and Poland, but also a 40% stake in Russia. Another diversified developing Europe ETF worth considering is the SPDR S&P Emerging Europe ETF (NYSEArca/GUR). It also has a stake in Russia, but rounds out its holdings with Ukraine’s other neighbors like Hungary, the Czech Republic, and Poland.

While the options are limited, investors could benefit from the reasonable to downright cheap valuations of emerging Europe ETFs. For example, an ETF tracking Poland, Market Vectors Poland ETF (NYSEArca/PLND) is down 20% since the start of 2014 and has remained relatively flat in 2015, yet there are calls for the economy to grow at three percent in 2015—a handsome amount in a stagnant global economy.