Chart of the Week: EGPT and Collateral Damage

Unrest in Egypt is barely three weeks old and already the ripple effect has crossed the globe in several waves.
I find it interesting how regional and country ETFs can be of some assistance in evaluating how investors are thinking in terms of contagion risk, be it political or economic – or at the very least in terms of the breadth and depth of the economic impact of specific events.

In this week’s chart of the week, I endeavor to track some elements of the relative geographical spread of concern with a handful of ETFs. The baseline ETF, EGPT, shows how the situation deteriorated over the long weekend in the U.S. from January 14^th to January 18^th, then began to accelerate downward during the January 26^th trading session.

In terms of impact, the additional four ETFs include one broad-based frontier ETF, FRN, and three single-country ETFs: Turkey (TUR); Israel (EIS); and South Africa (EZA). Of this group, the Turkey ETF has proven to be the most volatile during the crisis and also suffered the largest drawdown. Interestingly, the Israel ETF has been the least volatile of the group, but the only one which appeared not to find a bottom on January 28^th and continued to trend lower. The top performer of the group is EZA, the South African ETF. EZA has fallen slightly more than half as far as EGPT since the beginning of the crisis and has steadily gained strength during the past week. Among country ETFs, EGPT and TUR were the top two performers during the past week.

Note that there are several regional ETFs which cover northern Africa and the Middle East. I discussed these during the Dubai crisis at some length in Frontier ETFs and Chart of the Week: Market Vectors Gulf States ETF (MES).

Related posts:

• Frontier ETFs
• Chart of the Week: Market Vectors Gulf States ETF (MES)
• More Turkey Anyone?
• Chart of the Week: Irrepressible Colombia (GXG)
• More Top Emerging Markets ETFs
  

[source: ETFreplay.com]

Disclosure(s): long TUR at time of writing

Chart of the Week: Irrepressible Colombia (GXG)

While U.S. investors can be forgiven for thinking that stocks have been stuck in a fairly narrow trading range for the last 3 ½ months, those who are scanning the globe for investment ideas are likely to have seen an entirely different investment climate.

A case in point is the Global X/InterBolsa FTSE Colombia 20 ETF (GXG), which has regularly been showing up as one of the top geography-based ETFs in my weekly newsletter. GXG is up 42% in 2010, handily outdistancing the BRIC ETF, EEB, and the popular broad-based emerging markets ETF, EEM, which are down -4.8% and -1.8% year-to-date, respectively.

Whereas BRIC has been a popular emerging markets investment theme for the past few years due to the popularity of Brazil (EWZ), Russia (RSX), India (EPI) and China (FXI), some have suggested that the current decade may turn out to be the decade of so-called frontier ETFs, with countries like Colombia, Indonesia (IDX), Vietnam (VNM), Egypt (EGPT), Turkey (TUR) and South Africa (EZA) among the top performers. These frontier ETFs already have their own catchy acronym, CIVETS, in order to make them easier to recall.

In terms of economic firepower, don’t expect the CIVETS to displace the BRIC countries, but when it comes to returns, the CIVETS are already off and running. With the best performance of any country ETF so far in 2010, Colombia has been acting like the new lead dog and has earned the spotlight as this week’s chart of the week.

Related posts:

• Frontier ETFs
• Chart of the Week: Market Vectors Gulf States ETF (MES)
• The BRIC Bull
• Chart of the Week: Emerging Markets

[source: StockCharts.com]

Disclosure(s): long GXG, IDX and VNM at time of writing

Frontier ETFs

In yesterday’s chart of the week, I looked at three ETFs with exposure to the Middle East:

• Market Vectors Gulf States ETF (MES)
• Wisdom Tree Middle East Dividend ETF (GULF)
• SPDR S&P Emerging Middle East and Africa ETF (GAF)

It is a little known fact that Middle Eastern ETFs are actually subset of a relatively new class of ETFs called frontier ETFs. Many of these frontier ETFs are single country ETFs, but two in particular stand out as diversified frontier plays:

• PowerShares MENA Frontier Countries Portfolio ETF (PMNA)
• Claymore/BNY Mellon Frontier Markets ETF (FRN)

I list PMNA (holdings) first because it is not a global, but a regional ETF, based on the NASDAQ OMX Middle East North Africa Index. At present the fund has a strong emphasis on the Persian Gulf and should be considered as a slightly more liquid (but still relatively illiquid) alternative to MES and GAF, trading approximately 10,000 shares per day. As of last week, the top country allocations were in the United Arab Emirates (22.6%), Egypt (20.2%) and Kuwait (16.9%).

In contrast to PMNA, FRN (holdings) has taken a much broader and more geographically diversified global approach, without a particular regional emphasis. Specifically, the ETF is designed to track the Bank of New York Mellon New Frontier DR Index. As of September 30, the top country allocations were Chile (28.6%), Poland (15.9%) and Egypt (15.4%).

The chart below shows that the while PMNA and FRN were very similar in terms of performance for the first five months of 2009, the more diversified FRN had been a much stronger performer during the latter half of the year. Not surprisingly, given PMNA's exposure to the Persian Gulf, the gap has widened significantly during the last few days.

In addition to these multi-country frontier ETFs and regional frontier ETFs such as Market Vectors Africa (AFK), it is important to keep in mind that there are many single country ETFs available, with an increasing amount of geographical diversity. Just last week, the first Poland ETF (PLND) was launched. For investors who are interested in single country Middle Eastern ETFs, Van Eck is planning to launch new ETFs for Egypt and Kuwait.

Finally, consider that frontier ETFs are likely to appeal only to investors who can tolerate high levels of risk. The multi-country and single country variants suffer from low liquidity and high volatility, making it unwise to build up large positions until trading volumes increase dramatically from current levels.

[source: StockCharts.com]

Disclosure: none