Overseas financial markets opened strongly on Monday morning
as news of the weekend referendum in Crimea to formally join
Russia was passed with an overwhelming majority vote.
The Crimean peninsula is seen as a key strategic asset for
Russia in both their military and economic endeavors which is why
the vote was an important turning point for tensions in the
The widely followed Russia Market Vectors ETF (NYSE:
) gained for its second consecutive day after weeks of hard
pressured selling sent their markets plummeting lower. RSX tracks
48 underlying stocks traded on Russian markets, with the
state-owned Gazprom OAO its predominant holding at 8.04 percent.
In fact, because RSX is market cap weighted, the top 10 largest
holdings represent more than 60 percent of its total portfolio.
So far this year, RSX has lost 24.45 percent of its value through
Friday's closing price.
Should Traders Be Worried About Crimea?
Another ETF that that saw strong gains on Monday is theiShares
MSCI Emerging Markets Eastern Europe ETF (NYSE:
) which tracks 51 underlying stocks primarily centered in Russia
and Poland. This ETF takes a similar market-cap approach to its
portfolio construction, but is diversified across multiple
Eastern European countries. It also has a higher concentration in
the energy and banking sectors than RSX.
Only time will tell if this small recovery can morph into a
more sustainable uptrend. The entire Eastern European region is
fighting the headwinds of social unrest and looming western
sanctions as a result of this recent Crimea vote. The dispute
between Russia and Ukraine is far from over and may have ripple
effects across even more emerging market countries in the near
future as well.
Russia typically makes up between five to fifteen percent of
most emerging market and BRIC indexes which can have a
significant impact on the returns of even a diversified fund such
as the Vanguard Emerging Market ETF (NYSE:
). Investors that are looking to gain exposure to Eastern Europe
or emerging markets as a value play may want to look to a
diversified index to minimize the risk of overexposure to any one
country or sector.
© 2014 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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