Trading the Russia-Ukraine Conflict
Movement in the global markets has become closely intertwined with the Russia-Ukraine conflict, and investors and traders can use country-focused ETFs and ADRs to track and trade ongoing developments.
The Russia-Ukraine conflict—officially known as the Russo-Ukrainian War—has been steadily rising on Wall Street’s “wall of worry,” and now arguably holds the number one position.
At present, that means daily movement in the major market indices pretty much hinges on news developments out of Eastern Europe.
On the first day of trading after the President’s Day holiday, on Feb. 22, that translated to a 1-2% decline in the major averages, as news reports indicated that the Russian military was being deployed into two war-torn provinces in eastern Ukraine.
While that development wasn’t the worst-case scenario, it still represents an escalation of hostilities—and possibly “the point of no return” in terms of ongoing diplomatic efforts.
As most are well aware, the Russo-Ukrainian War started back in 2014, when Russia annexed the Crimean region from Ukraine. But later in that same year, Russian-backed forces also moved into Donetsk and Luhansk, which are Ukrainian provinces located along the shared border between Russia and Ukraine.
Over the last eight years, sporadic fighting in that area of Ukraine has claimed the lives of an estimated 14,000 individuals.
On Monday of this past week, President Vladimir Putin of Russia not only announced that his country had officially recognized those areas of Ukraine as “independent,” but he also announced that the Russian military would be expanding its operations in those areas.
While the announcements shook international financial markets and catalyzed sharp rebukes from world leaders, these moves didn’t appear to represent the worst-case scenario. But that may still be yet to come.
As of now, in black and white terms, Russia has ratcheted up its military operations in an area of the world that has been at war since 2014. That’s not a major development.
Diplomatically, however, the move did represent a tectonic shift, and one that ties back to the so-called “Minsk Agreements.”
The Minsk agreements are two documents signed back in 2014 and 2015 that were intended to form the legal foundation for ending hostilities between Russia and Ukraine. Together, the “Minsk Protocol” and the “Minsk II” agreement were considered to be a blueprint for lasting peace in the region.
But hopes for a lasting ceasefire—under the umbrella of the Minsk Agreements—were completely extinguished on Monday when President Putin announced that the agreements “no longer exist.”
Worryingly, remarks by Putin in a public speech on Feb. 22 also implied that the Russian government doesn’t believe Ukraine has “had a tradition of genuine statehood,” and that “modern Ukraine was entirely created by Russia, more precisely Bolshevik communist Russia.”
These words no doubt chilled the spines of leaders and diplomats from the West that had been suing for peace using the Minsk Agreements as the foundation of a broader peace treaty.
Trading Russian Country ETFs
Aside from President Putin and his inner circle of advisors, nobody knows for certain what might happen next in Eastern Europe.
Will the expansion of Russian military activities in Ukraine be limited to the regions that were already at war? Or will the Russian leader order a full-scale invasion of Ukraine, including a march on the Ukrainian capital of Kiev?
Until more is known about Russia’s broader goals, it’s difficult to predict what might happen, and how those events might impact the global economy and financial markets—not to mention the lives of everyday Ukrainian citizens.
As mentioned previously, daily moves in the major market indices are undoubtedly linked to developments in Eastern Europe at the present time. As is the price of crude oil, and other energy-related commodities.
But investors and traders seeking to track and trade the current conflict in Eastern Europe may also want to add the following Russia-focused country ETFs to their watchlists, as well:
- VanEck Russia ETF (RSX)
- iShares MSCI Russia ETF (ERUS)
- Direxion Daily Russia Bull 2x Shares (RUSL)
When accessing global markets, investors and traders typically use three different avenues: trading directly on international exchanges, trading American Depository Receipts (ADRs), or trading international exchange-traded funds (ETFs) like the three listed above.
Because the average brokerage account doesn’t allow direct access to international exchanges, most investors and traders utilize the latter two approaches when accessing exposure to global stocks, ETFs and indices. Many of these products also offer associated equity options.
ADRs, for their part, are certificates issued by U.S. financial institutions that represent a share of a foreign company’s stock. They’re traded just like domestic stocks on U.S.-based exchanges—meaning you don’t need a special brokerage account to access them.
International ETFs are typically designed to provide exposure to a particular region of the world, or a group of international companies with a similar profile.
For example, the iShares China Large Cap (FXI) is composed exclusively of large-cap companies with direct exposure to the Chinese economy. On the other hand, the iShares MSCI EAFE (EFA) is composed of large and mid-cap companies operating in a variety of developed countries around the world.
The most widely followed Russia ETF is the VanEck Russia ETF (RSX). As tensions have risen in Eastern Europe, the RSX has suffered—the RSX has plummeted nearly 40% since October of 2021.
Alternatively, one of the highest volume and most recognized Russian ADRs is Yandex (YNDX), which has also taken a beating in recent months. Yandex closed above $86/share on the first of November last year, and is currently trading $39.70—representing a correction of 53% in just under four months.
Unfortunately, there are no country ETFs that focus on Ukraine.
To learn more about trading international markets, readers are encouraged to review a past installment of Market Measures on the tastytrade financial network.
To follow everything moving the markets on a daily basis, readers can also tune into TASTYTRADE LIVE—weekdays from 7 a.m. to 4 p.m. CST—at their convenience.
Sage Anderson is a pseudonym. He’s an experienced trader of equity derivatives and has managed volatility-based portfolios as a former prop trading firm employee. He’s not an employee of Luckbox, tastytrade or any affiliated companies. Readers can direct questions about this blog or other trading-related subjects, to support@luckboxmagazine.com.
