Dramatic turns, one after another, in Egypt have given the
country a hard time to put it mildly. The crisis deepened
recently, when the military forced President Mohammed Morsi to
A clash then ensued between the military forces and supporters
of Morsi, turned deadly, as dozens were killed and scores more
were injured. The Muslim Brotherhood and their opponents called
for fresh mass rallies, renewing fears of another round of street
violence over the ousting of Morsi (read:
Egypt ETF in Trouble on Political Turmoil
Boon or Bane?
Despite the violence, this shift away from Morsi was
apparently welcomed news for the market, as growth of the most
populous Arab country was thwarted under Morsi's 12-month
leadership. Economic deterioration with rising inflation, higher
debt levels, devaluation of the Egyptian pound and rising
unemployment had dampened investor confidence in the country and
eroded support for the Islamist-backed government.
Inflation climbed to 21%, up from 3% in Feb 2011, when Mr.
Hosni Mubarak was overthrown. Meanwhile, unemployment is
currently at a record 13.2%, while government debt has risen by
$10 billion to nearly $40 billion (read:
Three Country ETFs Struggling in 2013
Foreign exchange reserves had also plunged more than 50% from
$36 billion in Dec 2010 to $13.5 billion in Mar 2013. Foreign
exchange reserves suffered due to declining tourism revenues and
massive capital outflows. While tourists continue to avoid the
country; most global investors have adopted a wait-and-watch mode
till the political situation stabilizes.
Despite the current turmoil, the main fund to target the
Market Vectors Egypt Index ETF (
was up about 9% in the past week but is still down double digits
year-to-date. Volume levels were also high, as the ETF saw nearly
3 times more shares exchange hands in the past week.
The fund tracks the Market Vectors Egypt Index, which
comprises companies that are domiciled in Egypt or generate at
least 50% of their revenues in the country. The fund holds 27
securities (mostly mid cap and small cap) in its basket and has
amassed $30.4 million in assets so far in the year. Expense ratio
is contractually capped at 0.94% until May 2014.
The ETF's structure also contributes to the volatility. More
than two-fifths of the total assets are invested in the financial
sector, with more than 9% weight assigned to the top holding -
Commercial International Bank (read:
3 Surging Financial ETFs Beating the Market
Why is the ETF up?
Clearly some investors believe that the country will do much
better in the post-Morsi environment and that brighter days are
ahead for Egypt. Some are also probably banking on the funds from
a long-stalled $4.8 billion loan from the IMF, which could help
to put the economy back on track.
Additionally, the heightened level of stability and the
relatively soon elections are promising for the nation,
suggesting that a new military dictatorship will (hopefully) not
follow in the wake of Morsi. In fact, Justice Adly Mahmoud
Mansour, head of High Constitutional Court, has temporarily taken
the presidential oath until new elections can take place, further
strengthening the stability in the rocky nation.
Lastly, there have also been positive developments from some
of Egypt's neighbors in the region. Both the
UAE and Saudi Arabia pledged, or are on the verge
, billions in aid, suggesting that other nations in the region
are supporting the developments and are at least somewhat
optimistic about the country's medium term future (see more in
Clearly, the country is facing political issues, and
heightened protests suggest continued turmoil in the near term
for Egypt. The recent surge though is promising, and suggests
that the country may be able to battle through its current batch
Still, the volatility in the ETF tracking this nation looks to
be immense, with 5% moves-both up and down-pretty common. There
is also an ever-present worry that elections will be delayed or
that outright civil war will take place, either of which could
cause a significant sell-off in EGPT.
For this reason, we are maintaining our Zacks ETF Rank of 5 or
'Strong Sell', on this ETF, as more trouble might be in store for
the nation. Big gains are also clearly possible in short time
periods, but with the incredibly high level of uncertainty in the
market, it might be a prudent idea to stay away for the time
being until more is sorted out in the troubled nation.
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MKT VEC-EGYPT (EGPT): ETF Research Reports
WISDMTR-ME DIV (GULF): ETF Research Reports
MKT VEC-GULF ST (MES): ETF Research Reports
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