This is not a misprint: On Thursday, the iShares MSCI Frontier
100 ETF (NYSE:
) rose almost 1.5 percent to hit a new all-time high on volume
that was over 30 times the daily average.
The iShares MSCI Frontier 100 ETF was not the only frontier
markets fund that was home to some unusual volume Thursday.
The WisdomTree Middle East Dividend Fund (NASDAQ:
), a more concentrated regional play than FM, also hit a new
52-week high on volume that was nearly double the daily average.
There was at least one obvious catalyst behind the volume spikes
in FM and GULF: Stocks listed in Dubai raced to a 54-month high
Thursday and the trickle-down effect to select
Dubai is one of the United Arab Emirates. That country
accounts for 37.3 percent of GULF's weight, making it that ETF's
largest country exposure. UAE is FM's fourth-largest country
weight with an almost 12 percent allocation.
Those that follow select Middle East markets probably were not
surprised by Thursday's moves in FM and GULF. Dubai stocks have
been among the worst most impressive performers this year and the
Dubai Financial Market General Index (DFMGI) is now up more than
52% year-to-date. Even with that stellar performance, Dubai
stocks are not expensive. Shares there trade at
just 10 times this year's earnings
By comparison, FM, which features Kuwait, Qatar and Nigeria
ahead of UAE in its lineup, has P/E ratio of 15.59,
according to iShares data
Compelling valuations are not the only reason investors are
warming to the Dubai stocks. Nor is Dubai the region's only
market that is capturing investors' interest. Qatar-listed stocks
have surged 16.6 percent this year. That is crucial information
to shareholders of GULF and FM because Qatar accounts for 28
percent and 16.7 percent, respectively, of those ETFs.
A catalyst that was highlighted early this month
and a again last week
is driving Dubai and Qatar stocks along with FM, Gulf and rival
ETFs higher. Arabian Business attributed some of the Thursday
buying to speculation
UAE will be upgraded to emerging market
when Index provider MSCI (NYSE:
) announces its annual index reclassification on June 11.
Qatar is also in line for the same promotion. MSCI
that its Qatar and UAE indexes are being reviewed for a possible
upgrade to emerging markets status.
Risks The ebullience surrounding GULF and rival ETFs such as
the PowerShares MENA Frontier Countries Portfolio (NASDAQ:
) is not risk-free. Given MSCI's history of not upgrading those
countries to developed market status, investors may not want to
bet on the promotion happening.
That is not a doomsday prediction, it is merely stating
obvious reality. MSCI, as Arabian Business reported, has snubbed
Qatar and UAE five times for emerging markets promotion.
Another snub could give doubters that think UAE stocks are
overbought an opportunity to sell, creating headwinds for the
aforementioned ETFs. PMNA, the PowerShares offering, allocates
more than half its combined weight to UAE and Qatar.
A Tradeoff Pensive investors that believe MSCI will keep Qatar
and UAE designated as frontier markets can stick with FM. That
ETF, which has attracted over $121 in assets in less than a year
of trading, devotes 28.5 percent of its weight to Qatar and UAE,
a small amount of compared to GULF and PMNA.
FM's 27 percent weight to Kuwait is certainly helping the ETF
as the Kuwait Stock Exchange Index is
44.5 percent this year
. Nigeria, which is not featured in the other ETFs mentioned
has also been making a decent contribution
to FM's 2013 upside.
Importantly, stocks in Qatar, UAE and Kuwait rallied for
several months before the MSCI announcement, which was not much
of a surprise because the first two have been close to promotion
in the past. Regarding UAE stocks, Dubai shares are still about
60 percent below their January 2008 highs, implying there might
be more upside to be had regardless of what MSCI says in
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(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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