Now that Ukraine's orange revolution has produced the democratic election of the pro-western, market-oriented Viktor Yushchenko, market expectations for Ukraine are positively rosy.

Bond spreads are narrowing, financial analysts are talking up Ukraine's equity market, and investors are breathing a deep sigh of relief. But too much optimism is misplaced - for Mr Yushchenko or for investors in Ukraine. There is still substantial political risk in the country as the new president's real work begins. Mr Yushchenko and his country now face the most daunting political challenges of Ukraine's young life as a nation. Investors should watch closely and remain cautious.