The export trouble in Germany and weakness in the rest of the Eurozone has created a short-term advantage for Russia.
A few weeks ago, U.S. Vice President Joe Biden made a statement that unless Ukraine fixed its internal corruption by the end of the year, current sanctions on Russia would be lifted. This basically gives the Ukrainian government a few short months to completely rehaul a deeply corrupt and entrenched political system — not going to happen.
So what is the real reason the U.S. is close to dropping sanctions?
For one, the sanctions have been effective in impacting Russia’s economy but have done little to thwart Vladimir Putin’s aggressive foreign policy. If anything, the exact opposite has been the result. This is what happens when the “enforcer” fails to back up its verbal threats, as the U.S. has done on multiple occasions. This has only worked to embolden Putin even more.
Secondly, and more importantly, Eurozone members are suffering from these same sanctions as Russia is a major trade partner with many of them. It is rumored that a number of European countries are planning to veto the sanctions’ renewal at the end year anyway, which would reopen trade between the EU and Russia.
Easing sanctions on Russia would bolster various European economies. As the EU’s third largest trading partner, Russia imports a number of items, including agricultural products and machinery from the EU. When the union is this fragile, every bit of relief matters.
The U.S. understands the dire situation in the EU and does not want to cause any more trouble for them. A financial crisis overseas would be detrimental to U.S. markets (SPY, Financial). This is why they are willing to lift sanctions, but to save face they have used Ukraine’s corruption as a reason for their decision.
Our long-term view on Russia is very bearish. The country is a mess and is on a steep path to becoming a disaster. Putin and his thugs are doing their best to destroy the capitalist system and install a Soviet-era command and control economy.
In the very short term, there are some positives that could boost some Russian stocks significantly higher from here, making them attractive trades. The biggest two being the potential for lifted sanctions as well as the possibility of Donald Trump being elected. Trump is a fan of Putin and has close ties to his inner-circle. It is no secret that Putin is actively meddling in the U.S. elections in order to elect Trump because of the benefits this would portend for Russia from an economic and foreign policy standpoint — the end of NATO being the biggest one.
One option is to go long the the Russian index ETF (RSX, Financial), which has already broken the $17.80 level.
Another play is the Russian miner Mechel PAO (MTL, Financial), which has shot up in the last few weeks. There is another entry point forming above the 5.20 area. Remember, these are purely speculative trades, not investments; which is how Russia should always be approached.
Disclosure: The author owns no shares in any stocks mentioned in this article.
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