Credit: Shutterstock photoInvestors in the only Egypt-focused exchange-traded fund did an about-face today, cashing out on what had been the best-performing ETF of the past week as the aftermath of an army-led coup d'etat there turned violent, with the death toll rising to at least 51.
The Market Vectors Egypt ETF (NYSEArca:EGPT) fell by almost 7 percent on Monday while the S&P 500 Index rose about 0.5 percent. Before deadly clashes between supporters of ousted President Mohammed Morsi and the Egyptian army clouded the outlook for the biggest Arab country, EGPT had risen more than 15 percent in the past week.
The sentiment that the army-led coup might lead to a new period of stability after a volatile two-year period since the toppling of Hosni Mubarak's regime in 2011 proved to be short-lived, and in its place is the sort of gnawing uncertainty that financial markets loathe.
Moreover, that uncertainty looks at the moment to be rather open-ended, as a succession process put forth by the army is hitting roadblocks. The Wall Street Journal, citing Egyptian state media, said 51 were killed and 435 injured in clashes between secularists and Islamists who had supported Morsi's election to the presidency about a year ago.
The latest turn of events began coming into focus a week ago on July 1, when the army issued an ultimatum that it would intervene within 48 hours and impose its own solution if Morsi didn't mend rifts with an increasingly restive opposition.
He was removed from power on Wednesday, July 3, and the violence since then has spread and grown more intense, the Journal reported.
Value Or Value Trap?
"I think the Egypt case is very interesting, but fundamentally it doesn't look good," said David Garff, whose Walnut Creek, Calif.-based firm Accuvest Investors markets equity asset-allocation plans using only single-country ETFs
The negative factors-relative to other countries-Garff considers important include momentum, risk, return on equity and, not least, valuation, to name a few.
As an example, the price/earnings ratio of the MSCI Egypt Index is 22.9, compared with 15.9 for the MSCI All Country World Index, which excludes frontier markets.
Those data points tell the tale of an Egyptian market that was positively on fire after the ouster of Mubarak.
Between the beginning of last year and Tuesday, July 3, EGPT was up 9.02 percent on an annualized basis, compared with 1.81 percent for the iShares MSCI Emerging Markets Index Fund (NYSEArca:EEM), a widely followed yardstick for developing-world equities.
More recently, of course, equity markets around the world have been pulling back largely because of the Federal Reserve signaling the possibility of changing interest rates, but also because of unrest in developing countries, including Egypt, Turkey and Brazil.
Garff noted that EGPT isn't yet part of Accuvest's universe of single-country ETFs eligible for its asset allocation plans because Egypt doesn't produce all 40 data points the firm requires to include a given fund in the mix.
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