In a world fueled by massive amounts of monetary easing and
voracious rate-cutting by scores of global central banks, dips in
more sanguine times represented buying opportunities. The other
side of that coin is that picking bottoms is tricky business and
a task that is made even harder in the developing world.
Yet buyers are tempting fate in Egypt, North Africa's largest
economy, and that explains why the downtrodden Market Vectors
Egypt ETF (NYSE:
) is up 2.7 percent Thursday. Just this month non-Arab foreign
investors have committed $34 million to beaten down Egyptian
according to Bloomberg
That may not sound like a lot, and by some estimates $34
million is about seven hours of profit for Exxon Mobil (NYSE:
), but $34 million is 26 percent more than the current assets
under management tally for EGPT.
To state the obvious, investing in Egypt is not for the faint
of heart. Even after the Arab Spring two years ago, Egypt is
still beset by political turmoil. Unemployment is well into the
double-digits, but roughly a quarter of the nation's young people
cannot find jobs.
Domestic and regional geopolitical concerns coupled with
dwindling foreign currency reserves
sent EGPT down 13 percent in the first quarter, but the declines
have not stopped. Since the start of the second quarter, the ETF
lost another 13 percent prior to Thursday's bounce.
EGPT sits with a year-to-date loss of almost 30 percent, one
that confirms the bear market for the EGX 30. Egypt's benchmark
index is off 23 percent since September, according to Bloomberg,
but even in May foreigners were modest net buyers of Egyptian
It is easy to see how some could be seduced by Egyptian
stocks. Specific to EGPT, the ETF had a P/E ratio of less than 10
and a price-to-book ratio of less than one at the end of May,
according to Market Vectors data
, implying the fund trades a steep discount to the broader
emerging markets universe. Then there is a 30-day SEC yield that
is fast approaching 15 percent, though that is a yield
to be cautious about
Still, EGPT remains a mixed bag. At best. The ETF labors
around its lowest levels since the Arab Spring and Egypt is in
losing its emerging markets status
. Think that cannot happen? Think again. Index provider already
demoted another North African nation, Morocco, to frontier from
All of that is a long way of saying what investors should
realize with Egypt and EGPT: There might be plenty of reward, but
there is definitely ample risk.
For more on
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