The Russian stock market has declined 14% since the start of the Georgian conflict. Yet, you should feel good as China’s market has been down 50% and India down 36% since the beginning of the year. This tells me Russian markets were not over-inflated in the first place like many emerging markets.

As a follow-up to yesterdays “Minute”, the European Union just released a statement encouraging Russia to enter the WTO. This was in response to Russia’s statements it may roll back certain reforms it was going to make to meet WTO requirements. It is still unlikely though, WTO entry will be achieved by the end of 2008. The significance of this is that even in the middle of harsh words being exchanged from the recent military conflict, the EU, Russia’s most important trading partner is unlikely to start diplomatic or trade sanctions, although the Russian markets, at least for now have reacted like they are. Keep your intestinal fortitude, be a smart investor, and of course ask us where the opportunities are presenting themselves.

A question we are being asked with some frequency by our Western investors and other interested observers is how will the conflict in Georgia hurt investment in the region. In the short term of course, war is bad for business if for no other reason it makes people nervous and for other obvious reasons. But regarding this conflict specifically, we see the dips as a reason to be big buyers of securities that have been punished unfairly. Firstly, commodities still make up a large share of the Russian economy, they are at all time highs and the world needs them even if certain countries had the will to carry through with them. There will be no wider military conflict, the insanity of that proposition should be apparent to anyone that contemplates it. Economic sanctions would hurt Western countries to a much greater degree than Russia as Russia exports mainly commodities to the West, which they need and must buy regardless while dozens of the largest Western companies rely on Russia to be a major catalyst for growth. We are left with stalemate, which is fine by us. Take everything that a talking head on a 24 hours news network and every speech by a politician looking for hype with a grain of salt.

In the approaching months we’ll see what direction taxes will go but in the near-term it is a confusing situation. For instance, the Finance Ministry would like to add a tax to payrolls of 3% for pensions, needless to say, business opposes this. Yet, Medvedev is planning a conference with some of the nations leading business figures to see what the government can do about lowering taxes. We’ll let you know what effect this will have on the economy in general and your investments specifically.

How would Russian-Georgian conflict affect bond market? Some foreign investors could pull out in a short term but they will be rushing back in a few months for the slightly higher corp bond interest rates.

The default of Marta Finance could be a warning sign for potential investors who rely mostly on ratings and financials. Look for our comprehensive analyzes on companies management and their records.

As the old saying goes, “if you can’t beat them, join them”, and that is what one of the world’s largest energy companies is attempting to do. It has been well publicized the disagreements between western energy firms , Russian energy firms, and the Russian government. Shell is proposing to swap an oil field it owns for an equity stake in Sibir Energy. No word yet on the firm’s reaction or even the government’s reaction.