Panic Selling in Russia


Posted in: Economics, General, Stock Market, Thought of the Week

Last Monday, Vladimir Putin, ordered troops to be deployed into Ukraine’s southern region known as Crimea. This area is predominantly Russian by decent and still loyal to the Russian government. Putin’s explanation for the aggressive move was to protect the Russian population living there from potential persecution from Ukraine’s newly formed government. The troop buildup in Crimea triggered the biggest stock selloff in Russia in over five year, down over 11%, and their currency weakened so much against the U.S. dollar that the Russian central bank was forced to intervene to prevent further losses. Subsequently, the S&P 500 and Europe markets lost anywhere from .75% to over 3% in value.

The following day on Tuesday, the U.S. woke up to news that Putin chose not to escalate Russia’s involvement in Ukraine. The markets immediately rallied across the globe as concerns over a full-blown invasion seemed highly unlikely. The S&P 500 saw its best day of 2014, erased all the losses for 2014, and even reached a new all-time high. Our Investment Committee believes one theory that holds some merit is that Putin backed off on Tuesday given the financial impact on Russia. Putin himself is a large owner of equities and most of his allies are very powerful and wealthy individuals in Russia who lost billions in the 11% selloff in Russia on Monday.

Panic selling is a kneejerk reaction driven by human emotion rather than fundamental analysis. Despite all of the selling, the only notable trend is that equities climbed higher each time because the catalyst for each selloff had nothing to do with the fundamentals of our economy and/or the fundamentals of the companies that compete in our economy. In other words, long-term investors can profit handsomely by spotting trends, and therefore, our Investment Committee has used these selloffs as opportunities to put cash to work.

As investors, it is important to know that we have seen this behavior before and we will see it again. Traders will continue to “shoot first and ask questions later.” Our Investment Committee welcomes such irrational selling and they will continue to sit patiently, waiting for the right buying opportunities to emerge.

Read this week’s Thought of the Week to learn more about the implications Russia has on the world economy.

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As an Investment Advisory Representative working in conjunction with Global Financial Private Capital (GFPC) we are provided weekly thoughts on what is happening in the economy and the market. Written by our investment committee at GFPC we find these thoughts to be informative and interesting.