As the eyes of the world focus in on the ongoing war in Ukraine, markets have plenty to react to, writes Trackinsight in its latest note on the conflict.
Not only have sanctions impacted investors in Russian companies, but also hit those companies and countries that share borders with Russia or are significant buyers of Russian energy. Many ETFs that track Russian equities have suspended creations and redemptions as sanctions make it impossible to execute trades, and liquidity vanishes from the market.
However, the VanEck Russia ETF which only suspended creations on Thursday witnessed USD46 million of inflows as opportunistic investors hope to profit from the fire-sale prices of Russian stocks.
Russia-focused ETFs get crushed by sanctions
– iShares MSCI Russia, ERUS, -99.7 per cent USD0 flows (creations suspended)
– Franklin FTSE Russia ETF, FLRU, -97.5 per cent USD0 flows (creations suspended)
– Van Eck Vectors Russia ETF RSX, -91.8 per cent, USD46.7 million of inflows (creations suspended Thursday)
Infection of neighbours and major Russian energy consumers
– iShares MSCI Austria Capped ETF, EWO, -11.4 per cent, USD2 million inflows
– iShares MSCI Finland Capped ETF, EFNL, -9.5 per cent, USD6.1 million of inflows
– iShares MSCI Germany ETF, EWG, -8.9 per cent, -USD35 million of outflows
– Franklin FTSE Italy ETF, FLIY, -8.4 per cent, USD0 flows.
Impact on energy and commodity markets
As two of the world’s largest producers of energy and agricultural commodities, the war is, of course, having a hugely disruptive impact on both the production and distribution of energy, farming of wheat, corn and other foodstuffs. Often described as the ‘breadbasket of Europe’, Ukraine typically exports USD7 billion of corn and wheat each year. Outside of Europe, Ukraine is also the largest supplier of wheat to China, so disruptions to supply are likely to have far-reaching side-effects worldwide.
– Teucrium Wheat Fund, WEAT, +26 per cent, USD18 million of flows
Sanctions that have hit Russia (the world’s second largest producer of natural gas) have reverberated around global energy markets as significant long-term supply problems begin to be priced in. The rise in the cost of oil and natural gas is a further blow to families and businesses already struggling with historic levels of inflation as the AAA warns Americans to budget for USD5 a gallon gas.
– United States Brent Oil Fund, BNO, +17.4 per cent
– United States Gasoline Fund, UGA, +14 per cent
– Invesco DB Energy Fund, DBE, +11.5 per cent
– North Shore Global Uranium Mining ETF, URNM, +10.3 per cent
– Global X Hydrogen ETF, HYDR, +10 per cent
However, the market for Carbon Credits has witnessed a huge sell-off as the connected volatility takes hold:
– KraneShares European Carbon Allowance ETF, KEUA, -23 per cent, +USD650,000 inflows
– KraneShares Global Carbon Strategy ETF, KRBN, -20 per cent, -USD33 million outflows
Flights to safety & metals
While Ukrainian refuges have been fleeing to neighbouring countries such as Romania and Poland, investors have rushed to the traditional safe haven of gold, and the new safe haven of Bitcoin. Gold ETFs have risen by an average of 2.3 per cent over the week and attracted USD2.3 billion of inflows – nearly a third of the total flows YTD (USD7.2 billion). Bitcoin, which advocates tout as having similar store-of-value, diversification and black-swan hedging characteristics of gold has also risen significantly over the week, jumping nearly 10 per cent to a price of USD41,000 per coin. Security and crypto-industry analysts believe that Russian Oligarchs are massively increasing their crypto exposures as a means to avoid sanctions.
– SPDR Gold Shares, GLD, +2.3 per cent, USD1.4 Billion of inflows
– iShares Gold Trust, IAU, +2.4 per cent, USD333 Million of inflows
– ProShares Bitcoin Strategy ETF, BITO, +12.3 per cent, USD34 million of inflows
– VanEck Bitcoin Strategy ETF, XBTF, +7.6 per cent, USD0 flows.