Recently we at Summit Financial Advisors have heard from a number of our clients wondering about how the current events in Ukraine may affect their investments. So we thought it best to communicate to you in the event you too are wondering.
Although it is always difficult to predict the future financial effects of global political events, we gather information from others who are close to the situation and perhaps have more data and insight.
Probably the most insightful is the US Federal Reserve. This last week Chair Yellen in her press conference on Wednesday was asked by Peter Barnes “if the crisis in Ukraine would produce headwinds for the US economy.” Her response was, “The linkage of US banking with Ukraine is not large……. We are not seeing meaningful impact now on the US economy and we are not seeing broader global financial repercussions.”
Perhaps here is why Chair Yellen thinks as she does. Ukraine is a small economy. Per the International Monitory Fund (IMF) the GDP of Ukraine for 2014 is projected to be $182 billion. That is about the size of Romania, Vietnam, or Bangladesh. Of course all of these countries have varying amounts of trade with the US, but they all are about 1% the size of the US economy. It is difficult to make a direct case for Ukraine whatever the outcome politically to have a significant effect on the US stock market.
Russia is another situation. Its GDP per the IMF is about $2 trillion or about 12% of the US GDP in size with significant trade with Europe. Consequently if the Ukraine situation were to expand to other countries by political or military action by Russia it could have more significant direct or indirect economic impact on the US.
Barrons in a March 22nd article however, makes a case against this by pointing out that the Russian ruble has fallen 10.4%, its stock market has fallen 18.6% and that the Russian government has direct ownership of 30% of the Russian stock market. Additionally per Barrons, the 10 richest Russian Oligarchs own 17% of the Russian stock market.
Financial interests may overrule political aspirations. Regardless we will remain watchful.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.