The Market Vectors Egypt ETF (NYSE:
) is getting in on Wednesday's ebullience surrounding emerging
markets funds as shares of the lone ETF exclusively devoted to the
North African nation are higher by 4.2 percent on light volume.
On a pure performance basis, EGPT's 2012 gain of 32 percent
looks good, but the ETF stumbled in the
latter stages of the year
as various domestic and regional issues finally began to catch up
with the volatile fund.
Today's surge for EGPT comes with a cautionary tale of its own.
The ETF, which allocates 42.5 percent of its weight to financial
services stocks, is moving higher despite the fact that Egyptians
are running out of their local currency - the pound - and
desperately grabbing for U.S. dollars.
The greenback is up more than half a percent
against the Egyptian pound today
, extending a slide for the Egyptian currency that started in
European trading this morning. With Egyptians clamoring for U.S.
dollars, the central bank has moved to ration the availability of
the U.S. currency, which has prompted elevated buying of euros.
to dwindling foreign currency reserves
, a plummeting pound has prompted a surge in credit default swaps
used to insure Egyptian sovereign debt against default. Egypt's
five-year credit default swaps now stand at around 5.25 percent,
meaning it costs $525,000 to insure $10 million worth of Egyptian
five-year sovereign debt,
according to the Wall Street Journal
Due to increased political tensions and the aforementioned
dwindling currency reserves, which as the Journal notes only cover
90 days worth of exports, Standard & Poor's lowered Egypt's
credit rating to B- last week. That is six levels below investment
grade. That creates a potential double whammy for Egypt in the form
of higher borrowing costs because of the lower credit rating at a
time when its pound is losing value.
All this at a time when Egypt is facing slack economic growth
and unemployment of around 12 percent. The latter issue could
possibly spark more domestic protests because the rate of
joblessness for Egypt's young people is more than double the
Investors may have already been bracing for the worst, or at
least another decline, with EGPT. The ETF had nearly $55 million in
assets under management on
September 11, 2012
, the same day bloody protests broke out in Cairo. That number has
been reduced to
million as of December 31
For more on
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