Must-know Ukraine crisis update: Annexation of Crimea and more

Must-know Ukraine crisis update: Annexation of Crimea and more (Part 1 of 7)

Why Russia’s annexation of Crimea matters to equity investors

The Crimean crisis

The crisis in Ukraine, also known as the Crimean crisis, is an ongoing international crisis involving Russia and Ukraine. Over the months of political turmoil and social unrest in Ukraine that started last year over a $15 billion bailout, the eastern European country has become a battleground for the European Union (or EU) and Russia in the pursuit of political and economic influence.

Market Vectors Russia ETF (<a href='/quote-page/rsx/'>RSX</a>) price performanceEnlarge Graph

The crisis, which hit all major stock market indices, reflected in the dips in performance of exchange-traded funds (or ETFs) like the Market Vectors Russia ETF (RSX) and the iShares MSCI Emerging Markets Eastern Europe ETF (ESR), which track emerging market equities. We’ve also seen repercussions in the performance of developed market ETFs like the iShares S&P 100 Index Fund (OEF), whose underlying index tracks the top 100 companies in the U.S.—including Apple Inc. (AAPL) and Exxon Mobil Corporation (XOM).

The crisis unfolded after President Viktor Yanukovych left the capital, Kiev, on February 22. Soon, the Ukrainian Parliament impeached Yanukovych and set new presidential elections for May 25 while appointing an interim president, Oleksandr Turchynov.

To learn more about the developments that led to the above situation, read our earlier series, An ETF investor’s guide to the current tensions in Ukraine.

Russia has formally annexed Crimea. Crimea is an autonomous republic within Ukraine’s borders that possesses several natural gas fields, both onshore and offshore, and all connected to Ukraine’s pipeline system. From February 26 onward, pro-Russian forces began to gradually take control of the Crimean peninsula. On March 17, the Crimean Parliament declared independence from Ukraine and asked to join the Russian Federation. On April 15, Ukrainian parliament declared Crimea as a temporarily Russian-occupied territory.

When Russia invaded and annexed Crimea, Western leaders had warned Russia against trying the same trick in mainland Ukraine. However, Russia is now invading mainland Ukraine, beginning with Donetsk, an industrial city officially in Eastern Ukraine.

The next part of this series elaborates on this crisis and its implications for investors.

The Realist Discussions

  • Joel center right politically

    “And at the same time the consciousness of being at war, and therefore in danger, makes the handing-over of all power to a small caste seem the natural, unavoidable condition of survival.”
    ― George Orwell, 1984

    “The war, therefore if we judge it by the standards of previous wars, is merely an imposture. It is like the battles between certain ruminant animals whose horns are incapable of hurting one another. But though it is unreal it is not meaningless. It eats up the surplus of consumable goods, and it helps to preserve the special mental atmosphere that the hierarchical society needs. War, it will be seen, is now a purely internal affair. In the past, the ruling groups of all countries, although they might recognize their common interest and therefore limit the destructiveness of war, did fight against one another, and the victor always plundered the vanquished. In our own day they are not fighting against one another at all. The war is waged by each ruling group against its own subjects, and the object of the war is not to make or prevent conquests of territory, but to keep the structure of society intact. The very word “war,” therefore, has become misleading. It would probably be accurate to say that by becoming continuous war has ceased to exist. The peculiar pressure that is exerted on human beings between the Neolithic Age and the early twentieth century has disappeared and has been replaced by something quite different. The effect would be much the same if the three superstates, instead of fighting one another, should agree to live in perpetual peace, each inviolate within its own boundaries. For in that case each would still be a self-contained universe, freed forever from the sobering influence of external danger. A peace that was truly permanent would be the same as a permanent war. This–although the vast majority of Party members understand it only in a shallower sense–is the inner meaning of the Party slogan: WAR IS PEACE.”
    ― George Orwell, 1984

    “…the object of waging a war is always to be in a better position in which to wage another war.”
    ― George Orwell, 1984

    “Winston sank his arms to his sides and slowly refilled his lungs with air. His mind slid away into the labyrinthine world of doublethink. To know and not to know, to be conscious of complete truthfulness while telling carefully constructed lies, to hold simultaneously two opinions which cancelled out, knowing them to be contradictory and believing in both of them, to use logic against logic, to repudiate morality while laying claim to it, to believe that democracy was impossible and that the party was the guardian of democracy, to forget, whatever it was necessary to forget, then to draw it back into memory again at the moment when it was needed, and then promptly to forget it again, and above all, to apply the same process to the process itself—that was the ultimate subtlety: consciously to induce unconsciousness, and then, once again, to become unconscious of the act of hypnosis you had just performed. Even to understand the word “doublethink” involved the use of doublethink.”
    ― George Orwell, 1984