Geo-political issues are spreading across the world, though Russia-Ukraine continues to be the root of global worries. After being penalized with several sanctions – both mild and strict –by the Western nations as protest to the Crimea (an erstwhile Ukrainian territory) invasion, Russia took an eye for an eye with its a food ban on the West.
After six months of animosity, there is still no sign of the Russian-West tensions cooling off. Fresh concerns arose from the Russian retaliation, which came on August 7. The attack is aimed at North America, Europe and Australia, but European nations will be hit hard.
According to the Wall Street Journal, Russia has imposed a ban on fish/seafood products from Norway, fruits from Poland and Spain, cheese from the Netherlands and Finland, pork from Germany, Denmark, France, and Canada, and lastly, poultry from the U.S. (read: Where Will Europe ETFs Go After Portugal Banking Woes?).
Quite expectedly, this sanction came as a blow to the Euro zone, which emerged from a two-year long recession last year, posted a mere 0.2% GDP expansion in Q1 and stalled in Q2. Let’s find out which countries and related ETFs will be troubled the most.
iShares MSCI Finland Capped ETF (EFNL)
Per Business Insider, Finland’s third largest export market is Russia which accounts for around 10% of total exports. After two years of recession, the nation saw growth rate of a mere 0.1% (sequentially) in Q2.
As per Putin, trade turnover between Russia and Finland has already fallen 8% in the first half of this year. Most of the Russian work-in-progress investment projects in Finland have been put on hold or called off.
Amid such a backdrop, the latest round of sanctions and counter sanctions will be casting a dark cloud over the nation and will only hinder Finland’s recovery process. Finland-focused fund EFNL was almost flat this year. EFNL currently has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Finland ETF in Focus as Russian Sanctions Escalate).
iShares MSCI Germany ETF (EWG)
To everybody’s utter shock, the German economy, the Euro zone’s powerhouse, shrank 0.2% in Q2. The export-centric German economy appears specifically susceptible to the series of sanctions since roughly 30% of the European Union exports to Russia originate from this country. This number clearly explains the German economy’s lackluster performance in Q2.
Now with a new food ban, the economy is sure to lose its prior momentum if the geo-political tension does not cool off soon. Notably, Germany sells the maximum food and agricultural produce to Russia among all the EU nations with last year’s export being worth about €1.6 billion. The biggest ETF on Germany, EWG, has shed about 8.40% this year. EWG currently has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook.
iShares MSCI Poland Investable Market Index Fund (EPOL)
Per Wall Street Journal, Polish exports to Russia of the recently banned agro products were valued over $1 billion last year. The trade battle with Russia might trim about half a percentage point of Polish economic growth in 2014 as indicated by Poland's deputy Premier Janusz Piechocinski.
Though the Polish economy remains relatively sound at the current level in the Euro bloc, a half-percentage point slash in over 3% projected growth rate is hardly acceptable. A Polish produce group claims to export about 40% of the total produce to Russia, per Guardian journal.
Since the announcement of the embargo, the price of some vegetables has declined as much as 50%. EPOL – an ETF on Poland – has lost only 0.9% this year. EPOL currently has a Zacks ETF Rank #3 with a High risk outlook.
Global X MSCI Norway ETF (NORW)
Russia was Norway's top export destination for seafood, with $1.04 billion in sales last year. Russia’s ban on fish/seafood products from Norway has hurt the prices of seafood and the shares of seafood exporters are going downhill.
Though from a year-to-date look, NORW – an ETF on the nation – has added about 2.52%, the shares will likely take a beating in the coming days should the tension persist. NORW currently has a Zacks ETF Rank #3 with a High risk outlook (read: Which Europe ETFs Can Gain from Russian Tensions?).
iShares MSCI Netherlands ETF (EWN)
The Moscow Times noted that the Netherlands exported more than $600 million of fruit and vegetable last year. The Netherlands is rich in agricultural products. Russia buys around 2% of the produce that the Netherlands sells abroad.
The Dutch economy grew 0.5% in Q2. Amid such anemic growth, one of the foremost Dutch economic analysts apprehends this latest agro ban might cut 0.25–0.50 percentage points off GDP growth this year.
EWN – an ETF focused on the Netherlands – has lost about 4.8% so far this year. EWN currently has a Zacks ETF Rank #3 with Medium risk outlook.
In a nutshell, this ban hit the market in a cursed moment when the Euro zone is striving to evade another recession. Not only the abovementioned nations, other countries like France, Belgium, Spain and the U.K. will also bear the brunt too (read: Who Wins the 2014 World Cup of ETFs?).
To pay farmers for the damage of a board array of perishable goods, EU officials recently announced a reserve of around 125 million euros ($167 million). Amid such a situation, we remain wary of Europe investing, especially those countries with huge agro-based export exposure to Russia.
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