Geneva stalemate isn’t an endgame

This week’s talks between Russia, on one side, and on the other the US, NATO and the Organisation of Security and Cooperation in Europe (OSCE), have not resulted in an agreement. Russia and Ukraine’s markets reacted nervously: RUB depreciated to 77 vs USD in yesterday’s trading and the Ukrainian hryvnia fell to nearly 28 vs USD from 27.5 early this week.What you will learn:

• Markets have probably overreacted to the apparent failure of the talks, although geopolitical risks in the region remain elevated.
• We see the diplomatic discussions continuing in the coming weeks. The big come-back of investors into Russian markets is probably a way off.
• But in the absence of further escalation, the rouble should return on a firming trend later in Q1 as it remains substantially undervalued.