Egypt's stock market and ETF crashed Monday following days of
violent protests across the country against President Mohammed
Morsi's move to give himself sweeping new powers.
In afternoon trade,Market Vectors Egypt Index ETF (
) -- the only ETF tracking that country solely -- gapped down
8.09% to 12.95, a four-month low. It was the ETF's largest
one-day plunge in more than a year.
EGPT broke below the key 200-day moving average for the first
time in five months, a very bearish development. Trading tends to
become more volatile when a stock or ETF breaks below the 200-day
line. The biggest intraday swings and upside and downside moves
often occur under that line.
EGPT's fortunes appear to have turned.It had been one of the
of the year, rallying 48.94% year to date through Nov. 23. By
contrast,iShares MSCI Emerging Markets Index (
) returned 11.09% over the same period, according to
Morningstar.IShares MSCI EAFE Index (
), which tracks developed foreign markets, rose 12.75%.
"How this power grab plays out will determine whether the
Egyptian market rebounds to be the top global performer this year
or in the top five," Wojtek Zarzycki wrote in an email. He is the
chief investment officer of Optimal Investing in Toronto and New
York, with $150 million in assets under management.
"The sell-off is showing some oversold conditions so today's
snapback (from its intraday low) could be the start of a small
rally," Zarzycki wrote. "However, we need a few days of positive
returns to confirm."
S&P Capital IQ rated the country negatively in a report
released Aug. 31.
"The negative outlook reflects our view that we could lower
the ratings if political or social tensions were to escalate
again," said Trevor Cullinan, a Dubai-based analyst for S&P
Capital IQ. "Moreover, the willingness of international
donors/lenders to extend much-needed support could weaken if the
Egyptian authorities are unable to effectively address ongoing
economic, fiscal, and external challenges.
"Conversely, if Egypt's political transition strengthens the
social contract and if external pressures ease - an indication of
which would be an increase in net international reserves - we
could revise the outlook to stable."
PowerShares MENA Frontier Countries Portfolio (
), with a 20% weighting in Egyptian stocks, tumbled 3.01% to
10.54. It also broke below the key 200-day line . PMNA invests in
Morocco, Oman, Lebanon, Jordan, Kuwait, Bahrain, Qatar, United
Arab Emirates, Dubai and Abu Dhabi.
Jonathan Citrin, founder and CEO of CitrinGroup, a Birmingham,
Mich., firm with $60 million in assets under management, advises
investors to steer clear of investing in Egypt and the Middle
East. He expects those markets to be very volatile because of all
the conflicts in the region, including those in Israel, Gaza and
Syria. There's no telling what impact the upheavals will have on
businesses and foreign investments yet.
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