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Egypt ETF Tumbles on Political Turmoil

Sweta Killa

Anti-government protest in Egypt over the weekend triggered steep sell-off in the nation’s stock market. The EGX30 dropped 1.5% on Sep 23, extending the previous day loss of 5.3%, which was its biggest single-day fall since mid-2016. Meanwhile, EGX 100 fell 1.7%, adding to the previous day loss of 5.7%, the biggest drop since November 2012.

In fact, trading on Egypt’s stock exchange was suspended for 30 minutes for the first time since 2016 due to a sharp move of 5% (read: ETFs in Focus as Oil Spurts on Rising Middle East Tensions).

What Happened?

Hundreds of people demonstrated in central Cairo and several other Egyptian cities against President Abdel Fattah al-Sisi, responding to an online call for protests against government corruption. Small protests also took place in the city of Suez. Though the demonstrations were not large, they evoked memories of the years of instability following the 2011 uprising that ousted Hosni Mubarak.

The protest has threatened to tarnish the nation’s hard-won image as an emerging-market safe haven. The move comes days before the central bank is scheduled to decide on monetary policy. Economists had predicted a 150 basis-point cut to the deposit rate, according to forecasts compiled by Bloomberg, before the protests erupted.

Before the latest slump, Egyptian stocks had been on a tear on the back of reforms, which spurred economic growth at the fastest pace in the Middle East. Decline in inflation, and a recent interest rate cut also added to the strength. The equities gauge was one of the top four performing indexes among major peers tracked by Bloomberg globally this year in dollar terms (read: Emerging Currency ETF: An Awful August on Record).

ETF Impact

The political turmoil pushed the VanEck Vectors Egypt Index ETF EGPT — the only US-listed ETF dedicated to Egyptian equities — down by 6.2% on Sep 23.

EGPT in Focus

The fund tracks the MVIS Egypt Index, which includes securities of companies that are incorporated in Egypt or that are incorporated outside Egypt but have at least 50% of their revenues/related assets in Egypt. The fund holds 26 securities in its basket with heavy concentration on the top two firms — Commercial International Bank Egypt and Egypt Kuwait Holding Co — with at least 8% share each. From a sector look, about one-fourth of the portfolio is allocated to real estate, followed by materials (23.7%) and financials (19.9%).

The ETF has amassed $34.6 million in assets and trades in average daily volume of 20,000 shares. It charges 98 bps in annual fees.  

Bottom Line

With the latest slide, the Egypt ETF has eroded most of their gains accumulated this year. The fund is now up 9.5% from a year-to-date look.

Clearly, the largest Middle East country is facing political issues, and continued protests suggest continued turmoil. The current situation has pushed the near-term outlook into uncertainty. Additionally, EGPT currently has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook, suggesting that more trouble might be in store for the nation (read: Earn 5% Yields or More With These Dividend ETFs & Stocks).

However, Egypt’s progress in implementing economic and fiscal reforms, which are driving macroeconomic stability, fiscal consolidation and stronger external finance, could provide some boost to the country’s stocks and ETFs. As such, risk-tolerant investors may to consider this recent slump a buying opportunity, should they have the patience for extreme volatility.

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VanEck Vectors Egypt Index ETF (EGPT): ETF Research Reports
 
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