The latest news out of Georgia's breakaway region of South Ossetia is mildly encouraging but as politicians make statements and hold news conferences, the only real progress will be up to Russia and, to a lesser extent, their Georgian counterparts. A resolution of the conflict is in the benefit of both combatants and, naturally, to investors in the region. However, look for a continuation of cold-war tensions between the two sides leading to a general cooling of investor sentiment in the region for some time.

On my war radar are a few Russian ADRs (US-traded Russian stocks) which have dropped as war broke out and worsened with war developments, but they may rebound next week with any news of a ceasefire or, even better for investors, a peace pact. I'm especially vigilant of Russian steel issue Mechel (MTL). As you may recall, general investor sentiment toward Russia was already on a decline when Putin started going after MTL. I'm evaluating my position on MTL and other Russian issues in the changing framework of the conflict, and my reco on it and other issues depends on the direction of the war. Another Russian issue, ETF (RSX), has stumbled 6.5%, dipping below $40 early in the conflict against recent highs in the upper $50's. We'll also be looking at rollercoaster commodities, crude oil and uranium.

After a sharp fall earlier in the week, the benchmark RTS stock index - which tracks the performance of the Russian stock market - recovered a little, up 1.2% at 1,742 points by mid-week. Overall, this news isn't so good since the index has declined 24% year to date. Russian market conditions are volatile and threaten to worsen, and until the conflict comes to an end, through diplomacy or a change or strategy at the Kremlin, the market will continue its downward move.

I strongly advise avoiding any new positions (especially any quick-buck maneuvers). Moreover, if you're not in Central Europe equities, stay out for now. If you're in, move quickly as your options are narrowing. The best strategy, for this week at least, is to step aside and wait for a clear view. We'll have more on this Friday as we watch war developments and how it weighs on market conditions in the region.

Best wishes,

Jeff Manera
G3 Global Options,
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net