For over two weeks Egypt has been in turmoil as protesters have taken to the streets to call for the resignation of Mubarak. The conflict has left the country's stock market closed for over a week, and has sent stocks in neighboring countries lower. There has also been a ripple effect throughout the emerging and frontier markets with everywhere from China to India lower in sympathy.
IN PICTURES: 5 Simple Ways To Invest In Real Estate
Mubarak recently stepping down could mean it's time to look into at buying the ETFs that will benefit from a resolution to the Egyptian situation.
The most heavily affected has been the Market Vectors Egypt ETF (NYSE:EGPT), which has 100% exposure to the country through companies that are based in Egypt or derive the majority of their revenue within the country. The ETF has 43% of its assets in the financial sector and with many banks closed during the protests; a move back to "normal" will be a major boost for the related stocks. Telecom, industrials and material stocks make up the majority of the remaining allocation, and all will benefit from peace in the streets. The ETF charges an expense ratio of 0.94% and it currently has $24.9 million assets under management.
Looking More Broadly
The Market Vectors Africa ETF (NYSE:AFK) has 21% of its assets invested in Egypt, making it the number two country behind South Africa, which accounts for 29% of the ETF. Similar to EGPT, AFK also has a large exposure to the financial sector and could benefit from the Egypt situation moving in the right direction. The ETF fell 11% during the last two weeks of January before it began to bounce back in February as the protests became less violent and the conflict began to level off. An annual expense ratio of 0.84% is charged and there are currently $119 million assets under management.
The SPDR S&P Emerging Middle East & Africa (NYSE:GAF) has been affected by the Egyptian protests; however the ETF only has 6% of its assets invested in the country. The ETF lost 14% of its value before finding a bottom at the end of January, and it has been attempting to recover some of the losses. The country that has been weighing on the ETF has been South Africa, which accounts for 88% of the allocation.
The iShares South Africa ETF (NYSE:EZA) has lost over 12% since the beginning of the year and is trading close to a five-month low. The Egypt situation cannot take all the blame for the drop in EZA, however it does increase the risk of investing in the region and does play a role in sell-off. The ETF is heavily invested in materials and financials and with a drop in the price of gold recently it could have sent investors fleeing the country. It appears EZA is oversold and could rally on any positive news out of Egypt.
The Bottom Line
The last few weeks have opened the eyes of investors to the potential issues that could arise in the emerging markets around the globe. The political risk is higher than the developed countries and investors must understand this before considering investing in the asset class. That being said, the Egypt situation has created an opportunity for investors that understand the risk and the potential pitfalls with emerging market investing. (For related reading, take a look at What Is An Emerging Market Economy?)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!