This Dow Stock Could Be Hardest Hit by a Trade War With Russia

The Dow Jones Industrial Average (DJINDICES: ^DJI  )  is down today as fears rise over tensions with Russia, and a slowing Chinese economy. Specifically, tensions are rising between the West and Russia about Crimea, which is currently less than three days away from voting on seceding from Ukraine. Russia is preparing for sanctions from the West, and the possibility of sanctions of its own against Western companies, i.e., a trade war. While a trade war would affect many companies, one Dow stock could be hit hardest. Read on to find out more.

Dow Jones today
The fears over a confrontation with Russia combined with two poor economic reports on the Chinese economy was enough to send fear rising and stock markets tumbling. The Dow finished the day down 231 points, to 16,108. The S&P 500 (SNPINDEX: ^GSPC  )  finished down 32 points, to 1,806. The CBOE Volatility Index (VOLATILITYINDICES: ^VIX  ) , also known as the "fear index," was up 14%, to 16.51.

Volatility is rising as Russia moves closer to annexing Crimea. The West argues that the referendum to secede, scheduled for three days from now, should be postponed a month, and that it's not valid while Russian troops are occupying Crimea.

Fear of a trade war rose as Senator Kerry said before Congress that sanctions against Russia "could get ugly fast" if Russia doesn't change course. Bloomberg came out with a report that says Russian business leaders are preparing for a worst-case scenario of Iran-style sanctions from the West against Russian businesses and leaders. This would likely mean frozen foreign assets, restrictions on exports, restrictions on insurance and shipping, and restrictions on lending and other banking activities. If Russia responds with its own trade sanctions, not only would it hurt the Russian economy, as 40% of consumer goods are imported, but it would hurt Europe if Russia slowed or stopped natural gas exports. It could potentially hurt U.S. companies operating in Russia, as well.

Perhaps Putin summed it up best earlier this month when he said about sanctions, "In the modern world, when everything is interconnected and everybody depends on each other one way or another, of course it's possible to damage each other -- but this would be mutual damage." Russian stocks continue downwards as investors worry about the sanctions. Notable large caps leading the Russian stock market's decline since the start of tensions earlier this month are: Sberbank, down 21%; Gazprom, down 15%; Mechel, down 13%; and Yandex, down 22%.

The U.S. Dow stocks with the largest operations in Russia are in the oil and gas sector. ExxonMobil (NYSE: XOM  ) could be the hardest hit of the Dow stocks as it has the largest operations in Russia, and also has operations in Ukraine. Exxon operates Sakhalin 1 with Russian partner Rosneft, and separately has started to invest billions with Rosneft to explore the Arctic regions surrounding Russia. While Exxon appears to have largely had a good relationship with Russia, other Western companies, namely BP with TNK-BP and Shell with Gazprom, have been forced to sell their Russian operations to their Russian partners at low prices when tensions arose between them and partners.

As tensions continue, expect oil prices to rise. We will have to wait and see how the West will respond to Russia's actions, and how the situation unfolds. I could speculate for hours as to what might happen, but the question to ask yourself is, "Does this change my investing strategy?" The answer should be no.

I hope that cooler minds will prevail, and that the tensions in Ukraine will de-escalate. Until then, who knows where the stock market will go. The stock market has looked overvalued for some time, leading me to suggest that it's a good time to build up some cash so you are able to invest when opportunities arise.

The Motley Fool has always taught that Foolish (capital "F") investors invest in great companies at good prices, continue to educate ourselves, and hold on to our great companies over the long term. The market will fluctuate (sometimes massively), but great companies will win out in the long run.

The wisdom of Buffett
Warren Buffett has made billions through his investing, and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now, you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2875244, ~/Articles/ArticleHandler.aspx, 12/21/2014 6:56:16 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement