The eurozone and Europe are showing progress in finally getting out of their dismal multiyear double-dip recession; however, the uncertainties and hostilities unfolding in the Crimea region of Ukraine, which are threatening to escalate, could put a damper on the economic renewal in Europe.
With the recent vote in Crimea, whether legal or not, Russia has quickly passed a resolution and signed a treaty to annex Crimea to the Kremlin. The current buildup of Russian troops inside Crimea is a big concern, especially if a military conformation breaks out.
We are already seeing rising economic sanctions against Russia from the United States and countries in Europe. This is worrisome, as it could easily derail the economic renewal in Europe at this most critical time, stalling the region’s growth due to the major trading between Russia and Europe. A big impact could be the staggered flow of oil from Russia into Europe, which currently accounts for about 40% of the oil imports from Russia.
While I don’t think Russia will immediately cut the oil flow into Europe, as Russia also needs the oil revenues, I do expect Europe will look for alternative oil sources if the sanctions increase and tighten against Russia. If this were to occur, it could really hurt the country’s oil companies and the Russian economy overall.
Moreover, there’s also the retaliation from Russia, which would likely have an impact on Europe and potentially the global economy. The crisis comes at a critical time, as the eurozone is looking at gross domestic product (GDP) growth of 0.5% in the first quarter—a three-year high.
It’s clear something bigger may be brewing that will impact you if you have any capital invested in European and/or Russia-based stocks. In addition, a military conflict arising in Crimea would drive selling in the global stock markets. Russia says it doesn’t want a conflict, but you never know; investors need to expect the worst, that the conflict could escalate.
While Russian stock markets have already relapsed, there could be more selling on the horizon. To play a possible conflict and worsening economic situation in Russia, take a look at the Direxion Daily Russia Bear 3X Shares (NYSEArca/RUSS) exchange-traded fund (ETF).
If Russia retaliates, we could see a decline in European stocks, which you could play via the Direxion Daily FTSE Europe Bear 3X Shrs (NYSEArca/EURZ) ETF.
So while Russia definitely is posturing at this time and really appears to not want a conflict and more economic sanctions against it, you never know what the outcome will be. Investors need to be ready if they want to profit from the situation. Look at chaos as a buying opportunity. (Read “Stock Market Setting Up for Its Next ‘Fire Sale’?”)