The crisis that is now affecting Ukraine may seem too distant for investors in the U.S. However, in a globalized world an economic crisis in a distant country, wars and other type of conflicts spread easily to the rest of the world.  For those investing in the Ukraine or in companies or individuals that do business in the Ukraine, the crisis can hit closer to home that one might suspect.

As many investors considering potential options in the Ukraine are realizing, it can be nearly impossible to properly verify a local company from abroad.  Trained local investigators in the Ukraine are needed to verify the operations, reputations, financial status, and legal filings of any local entity.

Russia´s armed forces moved along the border with Ukraine and have caused some pronounced unrest in the currency markets, as well as a sharp selloff in the Russian equity market. Although some investment strategists qualify this as expected moves and nothing to worry about, others think that the situation in Ukraine can have serious consequences for investors and the global economy.

The price of a range of investments in Russia and Ukraine have already been affected and will affect others on the way, but this doesn´t necessarily mean that they will all drop. Share prices in Russia have fallen dramatically during the last days, but commodities like oil and gold have risen.

Some investment strategists are stating that this is a good time to put money into Russian shares directly, because it is cheap at the time, compared to the other emerging markets, and because they are skeptical that the fallout caused by the crisis will have a further impact. Many classify it as a short-term phenomenon and expect little to no further impact on outside markets. For those inclined to invest, there is one important thing to consider. When the shares in a country are very cheap – have in mind that Russia is by far the most oversold emerging market area- fraud cases increase.

Both Russia and Ukraine have been listed as high fraud zones due to numerous factors in the past, especially those related to corruption and bribery.  Not to mention their recently discovered hacking capabilities that lead to Internet fraud of all types, such as identity theft, phishing, Russian dating scams, and so on.  The economic situation is now offering a new range of illegal possibilities.

Investors who do not properly investigate where they´re putting their money are likely to lose it.  Always consider Ukraine due diligence before doing business, signing any contract or making payment to any individual or company in Russia or the Ukraine.  Some think of verifying as a waste of time and money, and this can be the costliest mistake ever, leading in bankruptcy or worse.

Yes, shares are cheap right now, and there is definitely opportunity for those willing to accept the risk.  Don’t fall for any deals that seem too good to be true. Investing at the right time is important and when the clock ticks there is a lot of pressure.  Seasoned investors know patience and due diligence is key, and you should be skeptical of anyone forcing you into a time-sensitive deal.

On the other side stand those who predict that the political turmoil and the uncertainty of Ukraine´s future will cause a long lasting market volatility which will impact almost all areas, from equities to bonds and commodities, and that investors should try moving into safe havens. An alarm was set off a few days ago after the Russia´s stock market was hit, as well as other equity markets like Wall Street. Global investors should not underestimate the risks of an escalation in Ukraine.

Either way, Russia and Ukraine investigators agree that caution is always the best tool for wise investments. Before making any move in Russia or Ukraine –and basically anywhere else- make sure that you have verified the company where you´re investing and  you have accurate information.

C. Wright

© 2014 Russia PI™

© Copyright 2014 Russia PI.  All Rights Reserved.  This content is the property of Russia PI, LLC and is protected by United States of America and international copyright laws.