Ukraine: An Extension of the Emerging Market Crisis

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At least we’re not in the Ukraine…or Turkey, or Thailand, or Venezuela for that matter. The people in these countries have had enough of endemic political corruption and want change. They’re taking to the streets, which usually ends in bloodshed as the detested politicians try and hold onto power for as long as they can, crushing all opposition in order to do so.

Those in the Ukraine demanding honest government looked like they gained a victory early in the week with the overthrow of that lunatic Yanukovych. But now the Russians have responded. They don’t want the Ukraine to turn towards the West. Besides, there is a large part of eastern and southern Ukraine that identifies itself with Russia. Russia’s Black Sea naval fleet is stationed in the port City of Sevastopol, and the Crimean region is distinctly Russian. The country is split.

Russia will do all that it can to maintain its influence over Ukraine. Most of the gas Russia sends to Europe traverses the Ukraine (which actually means ‘borderland’) via a network of pipelines. Russia wants the country to join a customs union with it, Belarus and Kazakhstan, rather than join the EU.

Chances are it’s going to get ugly. Power vacuums nearly always are. Will it have any effect on markets? Not immediately, but the US has already warned Russia not to get involved, something that the Russians will no doubt ignore completely. After the Syrian debacle, Russia knows the US has no stomach for foreign wars, apart from rhetoric and a promise of financial assistance, so it will do pretty much as it pleases to keep the old Soviet Bloc together.

If things escalate, as they probably will in the coming months, markets will begin to take notice. It will be an extension of the ‘emerging markets‘ crisis, which is not really a crisis right now because investors don’t appear at all phased about an economic slowdown in 50% of the global economy.

But history shows that in rampant bull markets investors aren’t worried about anything unless it’s staring them right in the face. After all, there might be another 5% upside to capture…

Regards,

Greg Canavan+
for The Daily Reckoning Australia

Join The Daily Reckoning on Google+

Greg Canavan
Greg Canavan is the Managing Editor of The Daily Reckoning and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails. For more on Greg go here.
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