The situation between Russia and Ukraine continues shake financial markets around the world. The major focus is on Russian natural gas supplies that fuel Ukraine and much of the European Union. With the Ukraine crisis changing day to day, investors are anxious and reacting by dumping emerging markets stocks and fleeing to safe havens like gold and the U.S. dollar.
The recent turmoil started in November when then-Ukrainian President Viktor Yanukovych refused to sign a trade deal with the EU, instead favouring stronger economic ties with Russia. This sent protestors to the streets and the president into hiding. The circumstances have since sent markets on wild swings.
A Blow To The European Economy
The EU is most at risk of suffering from the turmoil in Ukraine. It’s still reeling from a debt crisis and is now facing the possibility of a war close to its region, which could disrupt trade with eastern European countries and Asia. The EU also depends on natural gas imports from Russia.
The Natural Gas Dependency
Ukraine also gets 60 per cent of its natural gas from Russia, and 80 per cent of the gas that Russia sends to Europe goes through Ukrainian pipelines.Energy supply is on of Russia’s strongest controls over the region.
This has boosted natural gas prices around the world as Europe worries about a new source for the commodity. The most recent positive news is the U.S. plans to boost its natural gas imports to Europe, which has buoyed confidence in the natural gas market.
A Boost For Safe Haven Investments
Uncertainty in the global markets tends to send investors to “safe havens” such as the U.S. dollar, gold and the Swiss franc. This time is no different. The U.S. dollar and gold stocks have been stronger. When the situation cools investors may feel encouraged to flee these safer investments.
The Impact On The Ukraine Stock Market
Today, Ukraine announced it will be combining its two stock exchanges into one. It’s a move to create more liquidity and strength in its financial sector. Investors around the world are looking at Ukraine as a good medium term investment. The merging of the two trade floors means increased efficiency and less overhead costs, and this creates a more attractive environment for foreign investors.
The Canadian Impact
Canada’s natural gas industry stands to gain if Europe increases its dependency on North American natural gas. This conflict has escalated this far because of its key positioning in the natural gas supply to Europe. But Canadians could also be impacted by a continued sell off of stocks. The TSX is overweighed in the resources sector and this can create wild sings on our markets as the conflict continues to fuel insecurity in the global commodity sectors.