Investors Should Studiously Ignore Headlines Out of Ukraine

On Sunday, 97% of Crimeans who went to the polls for voted in favor of seceding from Ukraine and joining Russia. The result ushers in a new stage in the Crimean crisis -- one that could see Russia annexing the territory. Despite the uncertainty surrounding these events, U.S. stocks opened higher on Monday, with the benchmark S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES: ^DJI  ) up 1.03% and 1.13%, respectively, at 10:15 a.m. EDT. This looks like a healthy, if somewhat counterintuitive, reaction to the vote.

Certainly, individual investors ought to studiously ignore "the sky-is-falling" headlines such as Reuters' "World stocks near 1-month low as western sanctions on Russia loom' "Let's not forget that the MSCI World Index put in a new all-time (nominal) high earlier this month and the S&P 500 recorded its latest record high just 10 days ago. In that context, a one-month low means nothing at all, even if you could establish that it is entirely the product of this crisis.

At this stage, the expected impact of the Crimean situation on the outlook for U.S. business is zero. (I'm not trying to minimize the issue, which has other implications -- one can't make the same statement when it comes to the impact on U.S. diplomacy and European security, obviously.) Here's another data point for context: In 2013, the United States had a net trade balance of negative $16 billion with Russia (i.e., the U.S. was a net importer of Russian goods), or less than 0.1% of last year's U.S. gross domestic product.

Despite this, expect the Crimean situation to continue to populate headlines in the financial media this week. It will have to compete with another news item, as the Federal Open Market Committee on Tuesday convenes its two-day monetary policy meeting. The consensus appears to be that the Federal Reserve will scale back its monthly asset purchases by another $10 billion, bringing it down to $55 billion per month. I think the consensus is right, and certainly don't expect the Fed to alter its policy trajectory based on events in the Ukraine. On the other hand, investors will be more interested in whether the Fed amends its forward guidance policy with regard to interest rates, as the unemployment rate is with two-tenths of a percentage point from the 6.5% threshold rate at which the Fed had previously said it would consider interest rate increases.

For investors with a contrarian streak and some appetite for risk, far from seeking to reduce their broad exposure to stocks, I think the Crimea crisis offers an opportunity to gain exposure to the Russian stock market, which is one of the cheapest in the world at somewhere near five times earnings. The iShares MSCI Russia Capped ETF (NYSEMKT: ERUS  ) is one way to do this reasonably cheaply. As the Financial Times' James Mackintosh wrote at the end of last month: "There are good reasons for Russia to be cheap. But ask yourself this: if you will not buy at these valuations, what price would tempt you in?"

Easier money than Russian stocks: The 1 stock you must own this year
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


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: 2878241, ~/Articles/ArticleHandler.aspx, 11/27/2014 12:44:40 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