SWIFT Q&A - InvestingChannel


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Financial Pros >$1B AUM Top Stock Searches This Week

#2Creative Medical Technology Holdings14
#3Trio-Tech Intl.6
#3Universal Security Systems6

Reviewing J.P. Morgan’s Russian Stock Call

Several days ago, J.P. Morgan released a note highlighting sectors they expect to benefit from and suffer from the conflict.

Benefit: Energy Exploration & Marketing, Materials, Industrials (especially defense)

Suffer: Anyone with direct revenue exposure to Russia and Ukraine. Their basket of stocks includes Boeing (BA), Delta (DAL), Linde Energy (LIN), as well as various consumer discretionary names.

Reviewing the current sanctions, it seems unlikely defense names would see a major boost, nor would consumer discretionary companies see much of a decline in Russian sales.

Frankly, unless the U.S. and Europe decided to blackball Russia from global markets and trade entirely, any impact on revenues for companies in both categories would be limited.

The one exception is oil & gas exploration. Those companies directly benefit from the new sanctions by reducing supplies of natural gas and crude oil which are already thin.

That’s why in the short-term, pullbacks in many of these names driven by the ‘conflict’ can create long-term entry opportunities for investors.

Our favorites: Delta (DAL), Carnival (CCL), Kimberly Clark (KMB).



Key Takeaways

  • SWIFT is a system of communications between financial institutions of different countries that make transactions faster and easier.
  • Kicking Russia off wouldn’t necessarily have the same impact it once might have due to advances in technology. In reality, it would damage European countries as long as they continue to buy Russian energy exports.
  • Banning Russian bank transactions would deal severe damage to Russia’s economy.

In the last several days, a lot has happened not just in Eastern Europe, but globally.

Many of you have questions about sanctions and the markets.

We’re here to answer some of your most pressing concerns.

What is SWIFT?

Many of you heard about SWIFT.

The Society for Worldwide Interbank Financial Telecommunication, or Swift, is the financial-messaging infrastructure that links the world’s banks.

Based out of Belgium, the system is run by member banks of more than 200 countries and territories bringing together more than 11,000 financial institutions.

Iran and North Korea are examples of non-members.

What Cutting Russia Out Would Mean

Cutting Russia off would make cross-border transactions difficult, making it more costly and problematic. Given Russia’s export heavy economy, that would be a major blow. But, with technology today, there are more ways around the problem.

It could also push Russia towards China’s nascent system as well as weaken demand for the U.S. dollar as the world’s reserve currency.

How Do You Kick Someone Out?

While SWIFT is subject to EU and Belgian laws only, the U.S. could force its hand by sanctioning SWIFT itself.

Usually it requires agreement between the U.K., E.U., and U.S. to make it happen.

However, there is precedent. Back in 2012, the U.S. persuaded SWIFT to kick Iran. While congress could force the issue, President Biden can do it on his own without their authorization.

What Else Could the U.S. Do?

The Federal Reserve could block Russia from accessing the U.S. dollar on its own.

Banning Russian bank transactions entirely would do significantly more damage by effectively cutting them off.

The Bottom Line: There are options the U.S. and other countries could take that range from making things costlier and difficult for Russia to outright crippling its economy.

Markets rallied yesterday on news that the sanctions weren’t as severe as expected.

For now, the recent lows appear to be holding.

If you want to bet on a timely resolution, there are several Russian ETFs that you can use to gain exposure to the Russian stock market including:

  • VanEck Russia ETF (RSX)
  • iShares MSCI Russia ETF (ERUS)

Direxion Daily Russia Bull 2x Shares (RUSL)

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