As long as uncertainty continues to reign, we see pressure for the market to trade sideways for the remainder of 2011. However, having broken past the 1,500 point resistance level, the UX Index may enjoy a Christmas rally, aided by cooling devaluation fears and positive news flow from Europe. Ukraine’s discounts to its emerging market and frontier market peers have now inflated to around the April 2009 highs. We do not expect a substantial rally, but a volatile and mostly sideways trend could have a steep enough slope to help the UX Index close the year with a 10_15% gain. Over this period, we favor stocks in the metals and mining, manufacturing, consumer, utilities and potentially telecom sectors as outperformers.

By John Bonar

Saturday's talks between Ukrainian President Viktor Yanukovych and Russia’s two leaders President Dmitry Medvedev and Prime Minister Vladimir Putin have failed to yield a much hoped-for agreement on the price Ukraine pays for gas and the Russian proposal that Ukraine joins the Customs Union with Russia, Belarus and Kazakhstan. The lack of substantive agreement is disappointing not only for Ukrainian tax payers and gas consumers but also for European customers of Gazprom who fear another escalating dispute leading to the third cut off of gas supplies in six years.