With the latest developments looming around the Russian and Ukraine region, where there have been other players such as the US adding fuel by giving intelligence that Russia is going to wage war in a matter of days.
So is Russia really bent on taking over Ukraine?
Source: BBC
What is Happening?
The threat is real with more than 150000 troops stationed near Ukraine borders. Adding some perspective, there was just close to 5000 troops deployed in 2014 when they seized Crimea from Ukraine.
Understandably, Crimea is much way smaller than the whole of Ukraine. The seizure could be a strategic move given the geographical location of Crimea as could be seen from the map.
It also coincides with the Ukrainian deposal of their Pro-Russian president then.
The main crux of this threat by Russia would be to force NATO’s hand not to overextend their reach especially so in Belarus and Ukraine which share a huge border with Russia. This would undermine their security which explains the current situation.
There is a pact by the NATO members where an attack on one is equivalent to an attack on the coalition. This will be a threat to Russia’s defensive strategic moves around the region, should both Ukraine and Belarus come under NATO’s umbrella.
Ukraine vs Russia
Looking at the military strength, it is without a doubt that Russia is miles ahead unless the US and Europe come to Ukraine’s call for reinforcement. Ukraine is also at a huge disadvantage with no nuclear weapons at its disposal. They gave up all their nuclear weapons to Russia in exchange for promises of peace from Moscow 30 years ago.
Nuclear weapons have kept peace throughout the decades after World War 2 as an aggravation of a country with nuclear power would be detrimental for all. That brings total logic for North Korea to not disarm as it would definitely cause the fall of the current regime no matter what guarantees and promises are given. Trust No One!
Our view would be an outbreak of war is unlikely and it is more showmanship than wanting to inflict damage. This “military exercise” by Russia is to bring NATO into the negotiation table to ensure Belarus and Ukraine (Expressed interest to join NATO) is not on their list now or in the future.
Effect of War on Markets
We will take reference from the seizure of Crimea in 2014 from 20th Feb to 26th March as our starting point.
Source: MooMoo- S&P Chart
Source: MooMoo- Ishares MSCI Russia
From the charts and coinciding with the seizure of Crimea, we could see there was hardly a dent in the US markets during the whole saga. However, the Russian index did take a hit of close to 20% during that period. It fares badly for the rest of the year as it was likely due to the sanctions on Moscow after the attack.
However, Ukraine would have far greater implications if there was indeed an attack on it and the war could drag given Ukraine isn’t a pushover in terms of military strength. Our view is that the impact on the market would be more evident.
Perhaps a more accurate comparison would be the Gulf War from 2nd August 1990 to 28th Feb 1991. The S&P index then have a correction of close to 18% before bottoming out in October and by the end of the war, they are at an all-time high.
For the Gulf War, the US troops are 100% committed and the enemy (Iraq) is not a strong opponent with nuclear capabilities hence an easy walkover. This time around, it is Russia and I seriously doubt it will be a brief victory, hence if there is indeed a war and US troops are involved, the impact on the stock market would likely be more extreme than the Gulf War period.
Summing Up
The recent high tension in the Russian and Ukraine borders have rattled the markets. However, it is our view that an all-out war would not erupt as the underlying aim of the Russian’s is to bring NATO to the negotiation table.
By their brinkmanship, they are hoping to work out an agreement with NATO to never contemplate including Ukraine or Belarus on their list as they share a huge tract of borders with Russia. This is more of a defensive strategic move in our view.
Nonetheless, quoting Benjamin Franklin, the only certainty in life will be taxes and death. Therefore, anything is possible as we won’t know when a fuse will be ignited.
The recent comments by Biden that Russia would be attacking Ukraine in the next few days are all just psychological plays as we don’t think it is in their best interest.
It is now chess time for Russia, US and NATO.
Disclaimer:
The content here is for informational purposes only and should NOT be taken as legal, business, tax, or investment advice. It does NOT constitute an offer or solicitation to purchase any investment or a recommendation to buy or sell a security. The content is not directed to any investor or potential investor and may not be used to evaluate or make any investment. Do note that this is not financial advice. If you are in doubt as to the action you should take, please consult your stockbroker or financial advisor.
