The US Federal Reserve released its much anticipated minutes
Wednesday last week, with the upshot that if the economy did not
improve then a third round of quantitative easing (QE3) was
possible. In the recent past such news was enough to send U.S.
stocks higher, but the S&P 500, Dow Jones Industrial Average,
and tech-heavy NASDAQ all closed lower for the week. The Middle
East was a different story.
[caption id="attachment_70084" align="alignright" width="300"
caption="The Kuwait stock exchange"]
Speculation and theorizing aplenty failed to deliver a unanimous
conclusion, but it seems another round of QE will not make much of
a difference to the economy, or to stocks in the U.S.
Overseas is a different story. Stocks in Saudi Arabia's Tadawul
All Share Index -- the biggest stock market in the Arab world
-- rose to a three-month high on the same news. Apparently US
stimulus is more stimulative these days in the Middle East. The
index gained 1.4% to 7,104.48, the highest close since May, and has
increased 11% this year. Some analysts surmise that the prospect of
additional stimulus and persistent crude prices will continue
to lift stock prices in the Middle East.
While many voting members of the Federal Reserve Board support
additional easing, the if and when questions persist. Chairman Ben
Bernanke's next stop is Jackson Hole, Wyoming, and speculation will
now focus on his speech to be delivered there on August 31.
Despite positive stock market performance in the Middle East,
the performance of ETFs focused on the region was not as good.
The Market Vectors Gulf States Index ETF (
) was down for the week, as illustrated below.
But the long term chart looks more promising. The four-year view
seen below exhibits a clear and lengthy consolidation period
starting in 2009. This consolidation became much more specific over
the last year and a half. As the range narrows the likelihood of a
breakout in one direction or the other increases, and share price
seems targeted to about $20 per share.
Compared to the S&P 500 however, MES has been lagging
significantly. If additional U.S. stimulus does help, and if it
does actually materialize, then the breakout may very well be to
the upside. And there is a lot of room to the upside.
Another ETF with Middle East exposure is PMNA, the Powershares
MENA Frontier Countries Portfolio (
). PMNA is more broadly diversified than MES (MENA stands for
Middle East North Africa), which may account for it having
performed better last week. It too was down for the week but far
less than MES was.
The longer term view is more similar to MES, and the ETF also
appears to be coming to the end of a consolidation period.
However when charted against the S&P 500 PMNA looks like it
has lagged the U.S. stock index more so than MES. This is an
The short term (one week) performance of MES is superior to
PMNA, but the longer term (four years) is not. This can be
attributed to the randomness of returns, especially over the short
term. Investors reading about positive stock market performance in
a country or region must be aware that such performance does not
always translate to positive performance in an ETF focused on that
region (as with a single stock from a sector).
Very short term performance can defy logic and is largely
unpredictable. However, observation of short term returns is
necessary. For emerging market investors utilizing ETFs such as
these, it is best to know what the short term looks like, but to
focus on the long term.