Tuesday, May 13, 2014

Financial Comment - Ukraine's effect on the markets

Market Update with Ukraine in mind

Those, who are closely following the developments in Ukraine, know how tense and often tragic the situation is with Russian and local terrorists continuing to disrupt normal life in the eastern regions, torture and kill Ukrainians. At the same time, as it often happens, the situation is seen differently from afar. It is becoming increasingly clear that the global financial and investment markets are shrugging off the immediate dangers of the Ukrainian situation and considering it a “wait and see” story.

After a so-called “referendum”, which was forged by the terrorists last Sunday and which may be considered by Putin as a prerequisite for intervention, the main U.S. and Canadian stock indices rose by 1%-2% on Monday. Even Russian stocks were up on Monday and have by now risen 16% from their bottom which was posted in mid-March when the Crimean invasion was at its height.

We hope that the markets take the Ukrainian situation correctly. If Russia does not act upon the calls of the terrorist leaders to invade Ukraine, the situation may remain relatively stable at least until the presidential elections on May 25. In this case, it would be up to the Ukrainian military and security forces, as well as the public, to drive the terrorists out of their strongholds and prevent them from spilling over to other areas. This would also increase the chances to hold peaceful and transparent elections.

As an important development of a longer-term nature related to the Ukraine-Russia relations, Saudi Arabia, the world’s largest producer and exporter of oil, on Monday reassured markets that it is willing to increase the supply of oil if the crisis in eastern Ukraine created a shortage (the International Business Times). This statement has been taken by many observers as a signal for Russia about possible sanctions against its oil and gas industry which is vital for its economy. On the background of capital flight from Russia, which the European Central Bank now estimates at more than $220 billion since the beginning of the crisis (The Telegraph), this kind of sanctions could be devastating for the Russian economy.

By: Ukrainian Credit Union Limited

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