How To Trade Russian Aggression

Russia’s conflict with Ukraine and subsequent tit-for-tat sanctions with the West could be an economic game-changer. Currently, markets remain mostly in denial. Stocks across major indices including the US Tech 100, FTSE, and DAX have fallen back to where they were in April 2021, but they haven’t gone below that, despite the situation appearing to warrant it.

The reasons for this are cultural. Few conventional investors understand that Russia has the capacity to pull the rug out from underneath Western economies. While sanctions from the US, UK, and France will prevent ordinary Russians from poisoning themselves with fast food and wasting their time watching streaming services, Russia can turn off gas and oil supplies whenever it wants, undermining all advanced economic activity.

It controls the world’s largest source of natural resources. Countries in Western Europe are pitiful in comparison, despite having higher GDPs.

Trading Russian Retaliation

Given that the West has imposed serious sanctions on Russia designed to destabilize the rouble, it is natural to expect retaliation.

The oil and gas continue to flow to Europe, but if there is a major escalation, particularly one outside of Ukraine, all that could stop. Russia may activate its country-sized stopcock, devastating practically all non-primary sectors that rely on its inputs.

Traders, therefore, should consider getting out of sectors, like entertainment, or perhaps shorting them. In the future that Russia has planned, new film series coming out on Netflix will be the least of people’s concerns.

Traders should also consider how much higher oil and gas futures have to go. There are estimates that oil, for instance, could hit a whopping $200 per barrel over the coming months. Even gold is experiencing a surge as people get out of equity investments and find ways to protect their wealth.

As this week has unfolded, talks of improved negotiations have eased both oil and gold values, but severe risks remain.

Markets Bounced And Dropped

At the start of the Ukraine conflict, markets dropped. Then they bounced back, but now they are falling again. The start of 2022 was bad, seeing more than 10 per cent wiped off major indices.

Long-term investors remain optimistic, but there are serious short-term hurdles that need to be dealt with, including commodity shocks if supplies cease coming from Russia. Traders need to prepare for these now.