As the eyes of the world focus on the ongoing war in Ukraine, markets have plenty to react to. Not only have sanctions impacted investors in Russian companies, but also those companies and countries that share borders with Russia or are significant buyers of Russian energy. Many ETFs that track Russian equities have suspended creations and redemptions as sanctions make it impossible to execute trades, and liquidity is vanishing from the market. However, the VanEck Russia ETF which only suspended creations on Thursday witnessed $46 million of inflows as opportunistic investors hope to profit from the fire-sale prices of Russian stocks.
Russia-Focused ETFs Get Crushed by Sanctions
Infection of Neighbors and Major Russian Energy Consumers
Impact on Energy and Commodity Markets
As two of the world’s largest producers of energy and agricultural commodities, the war is, of course, have a hugely disruptive impact on both the production and distribution of energy, farming of wheat, corn and other foodstuffs. Often described as the ‘breadbasket of Europe’, Ukraine typically exports $7 Billion of corn and wheat each year. Outside of Europe, Ukraine is also the largest supplier of wheat to China, so disruptions to supply are likely to have far-reaching side-effects worldwide.
Sanctions that have hit Russia (the world’s second-largest producer of natural gas) have reverberated around global energy markets as significant long-term supply problems begin to be priced in. The rise in the cost of oil and natural gas is a further blow to families and businesses already struggling with historic levels of inflation.
However, the market for Carbon Credits has witnessed a huge sell-off. Some analysts suggest that market participants may be selling any excess CO2 certificates they have to cover their positions on the gas front and point out that Russian investors must cash in to avoid sanctions.
While Ukrainian refugees have been fleeing to neighboring countries such as Romania and Poland, investors have rushed to the traditional safe haven of gold, and the new safe haven of Bitcoin. Gold ETFs have risen by an average of 2.3% over the week and attracted $2.3 Billion of inflows – nearly a third of the total flows YTD ($7.2 Billion). Bitcoin, which advocates tout as having similar store-of-value, diversification and black-swan hedging characteristics of gold has also risen significantly over the week, jumping nearly 10% to a price of $41,000 per coin. Security and crypto-industry analysts believe that Russian Oligarchs are massively increasing their crypto exposures as a means to avoid sanctions.