But, given the level of uncertainty concerning global economic recovery, gains will remain small and sentiment fragile. Portfolio managers will retain the current high cash holding in their funds until there is a lot more certainty about 2011. Labour Day traditionally marks the end of the summer investment season and provokes the question whether it is now time to return to invest again in markets. As to whether it was right to have “sold in May and gone away” really depends on whether you sold at the start or end of May. Since May 1st, the RTS has fallen 7% while, since May 30th, the index has gained 7%. It was basically a summer of oscillating sentiment and newsflow. The index if currently down 12.5% from the mid April high. The sort of sideways movement that we have seen all summer is more likely to persist through September and until the 3rd Qtr earnings reports appear from early October. Valuations in almost all markets are compelling for long-term investors but the numbers still need to be validated with continuing good results. We have had that in the 1st two quarters from US and global corporations but there is again a question mark over just how sustainable is the recovery. That said, a survey from the American Association of Individual Investors last week said that optimism amongst US investors jumped strongly last week with the proportion of those surveyed that expect to see market gains over the next six months rising from 20.7% to 30.8% last week. The weekly fund flow reports from EPFR Global also show that investors in funds are keeping the faith with emerging market equities despite the volatile markets and economic uncertainties. Investors added another $581 mln to GEM Balanced funds last week and that brought the total for August, usually a quiet month for fund flows, to $8,277 mln. That is significantly better than the $4,954 million invested in July and almost as much as the total of $9,611 million from the 2nd Qtr. Amongst the country specific funds, Brazil is again the favourite while Asian funds report steady redemptions. The former because of continuing growth and a more relaxed attitude ahead of the presidential elections. The latter because of currency pressures and naval machismo between the US and China. Taiwan funds have reported almost $1 trillion of redemptions through the past three weeks. Russia funds are in neutral mode with only modest net investments ($2 mln last week) and redemptions reported last month. Turkey funds remain investor’s favourite in the Emerging Europe region. The Russian equity market and the ruble remain hostage to global trends and are not likely to significantly outperform or underperform until global markets break out of the summer trading range. Last week’s 2nd Qtr numbers were a mixed bag with, e.g. below consensus numbers from Evraz and Vimpelcom while VTB was amongst those to report better numbers. In general, the numbers validate the current very low relative valuation for the Russian equity market. But, with global uncertainty so high, being cheap is not the basis for a short-term investment decision. Severstal reports its 2ndQtr numbers on Monday. Rosneft is one of the stocks expected to feature across the newswires this week after week reports that the company’s longstanding President is to be replaced. This is an issue that has caused uncertainty for several years and that has weighed on the share price. The view of investors has been that the company could not move forward with major new initiatives and projects until this issue was resolved. If this change is confirmed then it may also revive speculation about a possible strategic stake sale in the company to either the cash-rich Surgutneftegaz or to a foreign N.O.C. such as India’s ONGC. The main event in Russia this week will be the second annual Global Policy Forum, which is to take place in Yaroslavl on Thursday and Friday. The theme this year is “The Modern State: Standards of Democracy and Criteria of Efficiency.” In practical terms, the agenda will be about creating an efficient economy and how to pursue the ambitions of President Medvedev’s modernisation agenda. President Medvedev will deliver the keynote address. PM’s from Italy, Korea and Japan are amongst those expected to attend. The President of Ireland will make the first official visit by an Irish president to Russia. Ireland has, despite the recent economic collapse, created a strong knowledge based economy and IT sector and the Irish delegation will hope to find a way to be involved with Russia’s modernisation programme. Also this week, Bulgaria’s Deputy Prime Minister will lead a delegation to Moscow to discuss the long outstanding issue of the proposed Burgas-Alexandroupolis oil pipeline. That visit is scheduled for Wednesday and Thursday (see separate note on the strategic implication of that pipeline). For international markets, it will be a much quieter week with few economic reports scheduled. The price of crude ended the last five days almost flat, albeit it was volatile mid week. The price of WTI for October delivery ended Friday at $74.60 p/bbl and the equivalent Brent contract closed at $76.67 p/bbl. Urals last traded at $76.05 p/bbl. The ruble was again relatively stable last week as investors wait for the end of summer doldrums and, hopefully, more decisive trends in global markets from September. The ruble gained ten basis points against the dollar to end the week at 30.674. Against the euro, the ruble lost eighty basis points and finished the week at 39.375. The dollar also fell by 1.0% against the euro to end the week at $1.2896. The better than expected – or, perhaps, simply the fact that the data was not weaker than expected – manufacturing report for the US and China on Wednesday helped reverse the previously negative mood. The much better payroll report on Friday confirmed the justification for greater optimism. Payrolls that exclude government agencies gained 67,000 in August, after a revised 107,000 increase in July. The net result was a gain of 3.8% for the All-World Index to bring the year to date performance back to minus 2.6%. The US markets snapped a three-week decline with the biggest weekly gain since the first week of July. The S&P 500 gained 1.3% on Friday to extend the five-day rally to 3.7%. Emerging markets largely followed the global trend. The MSCI Emerging Markets Index gained 3.5% for the five days. The best gains were in Emerging Europe and India while Brazil’s Bovespa and the Shanghai Composite Index lagged with more modest gains of 1.7%. Russia’s bourses moved almost exactly in line with the international market trend again last week. On Friday, the RTS added 0.8% and MICEX closed with a gain of 0.6%. Over the week, the indices added 3.2% each to close respectively at 1,467.6 and 1,410.2. The IOB Index of London traded GDRs was a little better with a closing gain of 3.4% for the five days. The price of industrial metals followed the trend elsewhere last week and bounced strongly. However, the positive conviction weakened somewhat ahead of the weekend and most prices suffered from small profit taking on Friday. Copper, the most volatile and economically sensitive of the metals, ended flat on Friday but with a five day gain of 3.4%. Gold has been a pedestrian performer in recent months, reflecting the uncertainty amongst investors about the threat of a double-dip recession. Gold closed Friday off 0.2% but with a gain of 1.1% for the five days. It closed at $1,251.0 per ounce. Silver, always much more volatile, climbed 4.6%. Most agriculture prices had another strong week after Russia confirmed that the wheat export ban will be extended until after the 2011 harvest. That may see the ban in place until October next year. Wheat and corn prices both jumped almost 4.0% on Friday to bring the five day gain for each to just under 7.0%.

This week

President Medvedev’s modernisation programme on show. The main event in Russia this week will be the second annual Global Policy Forum, which is to take place in Yaroslavl (North East from Moscow) on Thursday and Friday. The theme this year is “The Modern State: Standards of Democracy and Criteria of Efficiency.” In practical terms, the agenda will be about creating an efficient economy and how to pursue the ambitions of President Medvedev’s modernisation agenda. Creating an I.T. and so-called knowledge based economy will be headline subjects. President Medvedev will deliver the keynote address. The forum is expected to attract up to 500 delegates from 20 countries, led by the PM’s of Italy, Japan and Korea. Irish come to town. Also this week, the President of Ireland will make the first official visit by an Irish president to Russia. Ireland has, despite the recent economic collapse, created a strong knowledge based economy and IT sector and the Irish delegation will hope to find a way to be involved with Russia’s modernisation programme. Ireland is undoubtedly also looking for opportunities to be involved in the rebuilding of Russia’s agriculture sector. Despite the headlines promoting a future in technology and Russia’s so-called “silicon valley” projects, the immediate priorities are much more pragmatic. Russia is reliant on imports of food and medicines and the agriculture sector is suffering from decades of neglect. 20 million acres of arable land is currently idle and the sector is operating at 50% of the efficiency level of the EU according to the Agriculture Minister. This year’s drought has shown that this is where the more important investment projects are. Effort to revise the Burgas pipeline. Also this week, Bulgaria’s Deputy Prime Minister will lead a delegation to Moscow to discuss the long outstanding issue of the proposed Burgas-Alexandroupolis oil pipeline. That visit is scheduled for Wednesday and Thursday (see separate note on the strategic implication of that pipeline). Severstal today. The 2nd Qtr earnings season continues this week with, amongst those scheduled to release numbers, include Severstal (Monday) and Global Trans (Tuesday). Quieter week for economic news. For international markets, it will be a much quieter week with few economic reports scheduled. The US markets will be closed today for the Labour Day holiday. The first market sensitive economic report will be Wednesday’s consumer credit update. That will show, in practical terms, how confident are consumers about the future. The US trade balance - Thursday – may have an impact on the dollar. The weekly US Energy Dept report will be published one day late this week, on Thursday, due to Monday’s holiday. Chris Weafer is the Chief Strategist at Uralsib Group