A serious incident occurred today with a Russian fighter jet shot down by a Turkish Air Force plane. Turkey, of course, is a member of the North Atlantic Treaty Organization and this is the first time in history that a Russian plane was shot down by a member of NATO.
The situation is tense and markets are on edge as the world awaits a reaction from Russian President Vladimir Putin. Most are hoping that cooler heads will prevail. What makes the incident most disturbing is that reports indicate the Russian plane wasn't inside Turkish airspace at all. Some indications are that is was conducting anti-ISIS operations in Syria. Therefore, the jet posed no threat to Turkey.
It is extremely unlikely that Russia will engage in any military action against Turkey because that would automatically bring a NATO response, and that is something that Russia clearly does not want. No NATO country likely wants that either, so it's a good guess that talks must be under way behind the scenes right now with the aim of diffusing the situation.
Markets are on edge as a result of the incident, meaning they are down, with the Russian stock market having suffered the most earlier in the day. The MICEX was off about 3% as of this writing.
The Russian stock market has been the top-performing stock market in the world this year, up about 29% in local currency terms and about 20% in U.S. dollar terms, according to Ed Yardeni at Yardeni Research.
It's all the more impressive when you consider that Russia is the second largest oil and gas producer in the world (the U.S. is first) and there has been a huge and protracted decline in oil prices. Look at commodities, too, where Russia is a major producer of such things as metals and mined materials.
The strength of the Russian stock market speaks volumes about the resilience of the economy and the changes that are taking place these days. If an oil price decline of such magnitude and duration couldn't crater Russia's economy and stock market then what will? Maybe nothing?
We mustn't forget, too, that Russia has had to bear the brunt of deeply punitive Western economic sanctions. The amount of headwind thrown at this country has been unbelievable. It has been so huge that it likely would have brought most other economies to their knees. The resultant adaptation from all this onslaught will mean a much stronger, more diversified economy that will be well positioned for the long term.
Back in April of this year and prior to that in February, I spoke here on Real Money about my bullish outlook for Russian stocks. In February, the Russian stock market was in the process of hitting a four-year high and just the other day it reached another milestone, that being the highest level since 2008.
Taking exposure to the Russian stock market/economy has been a winning deal this year. The only downside to this is the fact that there aren't a lot of options for doing this. There is the Market Vectors Russia ETF (RSX), which is the most actively-traded Russian ETF you will find. However, it's up about 14% year to date, so it has definitely lagged the broader Russian market. That's mostly because it is heavily weighted with oil stocks, so that is what has held it back.
One the other hand, a non-oil Russian company such as Sberbank (SBRCY) (a bank) is up nearly 75% year to date. Sberbank trades an American Depositary Receipt here in the U.S. By the way, it is also a component of RSX.
Apart from those two, there aren't a whole lot of other opportunities here in the U.S. as far as Russian stocks go. You can trade the Russian ruble on the CME Group, but that's a futures contract. That means you will have to be careful about contract expiration, margin, leverage and everything else that goes into futures trading.
In addition, volume is generally light; however, open interest is decent in the front month. The ruble is up about 8% against the dollar for the year so far, and is up marginally off this news today