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Ukraine Crisis: Markets Will Shrug Off Crimea Standoff

NEW YORK (TheStreet) -- The escalating crisis in Ukraine weighed heavily on major stock indices on Monday although experts say that the threat of conflict in Crimea should not be cause for investor panic.

James Hughes, chief market analyst at Alpari UK in London told TheStreet that the unease over Ukraine should be viewed against the backdrop of recent market strength.

"You need to look at how quickly the markets have been moving to the upside over the last 12 months or so and how aggressively higher we have gone," he said, during a phone interview. "I think at the moment, it's more the uncertainty than the actual facts that are causing the problem."

Hughes explained that Monday was the market's first opportunity to react to the tense situation in Ukraine's Crimea region. The Crimean peninsula is home to a majority population of ethnic Russians, as well as Russia's Black Sea fleet, and is now the scene of a standoff between Russian and Ukrainian forces.

Russian troops have surrounded Ukrainian military bases in Crimea, further heightening the tensions between Moscow and Kyiv following the recent ouster of pro-Russian President Viktor Yanukovych. On Monday, Russia gave the besieged forces until dawn local time on Tuesday to surrender or face assault, according to published media reports. Russia's Black Sea Fleet, however, denies that the Ukrainian military in the Crimea will be stormed, according to Russia's Interfax News Agency.

Markets have responded negatively to escalating events in Crimea, with the S&P 500 off 0.74% at 1,845.75 and the Nasdaq 0.74% lower at 1,845.75. The Dow Jones Industrial Average was down 0.97% at 16,163.25.

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Nonetheless, Nigel Green, CEO of financial consultancy deVere Group believes that the market's unease over the Ukraine crisis will be a "short-term phenomenon."

"I believe that this tumble will be judged by history as a 'bump in the road' as markets will recover quickly," he wrote, in a statement. "I'm not worried that we are about to slump into another global recession as a consequence of the deepening crisis in Ukraine."

The Ukraine crisis has also tested Washington's relationship with Moscow. On Saturday, President Obama spoke with his Russian counterpart Vladimir Putin, expressing his deep concern over Russia's "clear violation" of Ukrainian sovereignty and territorial integrity.

In the longer-term though, deVere's Green believes that investors will look beyond the events unfolding in Ukraine.

"As the situation regularises, in whichever form that might take, and the world becomes accustomed to the new and/or existing realities, investors are likely to classify the Ukraine-Russia stand-off as 'a local issue'," he wrote. "Global financial markets will then return to focusing on key fundamentals, such as the improving trend of US economic data, than to what is happening in Ukraine."

Ukraine, however, is a major supplier of natural gas, particularly to Europe, and there are concerns about the impact of possible military action. "There's so many gas pipelines in the region, there's always the fear of disruption," said Alpari UK's Hughes. "Anything that pushes gas or energy prices up, causes a fear of inflation -- who can second guess what is the Russians' plan?"

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-- Written by James Rogers in New York

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