U.S. Markets closed

Political Violence Ignites Sell-Off in Egypt ETF


The Egypt related exchange traded fund is faltering and showing a greater disconnect with the underlying stocks as political violence escalates and forces the Egyptian bourse to close.

The Market Vectors Egypt ETF (EGPT) was down 3.2% Thursday and has declined about 5.7% since the street violence began Wednesday.

Bloody violence erupted in Egypt after a crackdown Wednesday on Muslim Brotherhood protestors who supported and called for the reinstatement of ousted President Mohammed Morsi, reports Ahmed A. Namatalla for Bloomberg.

“The market’s reaction to events like this is going to be hard and it’s going to be quick, at least until pressure on the street eases,” Souheir Asba, a frontier-markets strategist at Societe Generale SA (GLE), said in the Bloomberg article.

However, the Egyptian market closed Thursday due to the increased violence sweeping the country, Reuters reports. An official optimistically believes that the bourse will resume trading next week.

“Closing of the banks and the bourse is disconcerting for investors because it may indicate that security forces are planning something even bigger and more violent,” Asba said in the Bloomberg article.

“Once the market is going to open, it’s going to crash,” Asba added in a Wall Street Journal article.

This is the first time the Egyptian stock market was closed since the January 2011 revolt against Mubarak’s rule when trading was suspended for almost two months. [Egypt ETF Trades At Premium Over NAV]

Meanwhile, the EGPT ETF was trading at a 7.51% discount Thursday, according to Morningstar data. While the the Egypt’s market may be suspended, investors can still trade the U.S.-listed EGPT ETF to price where they believe Egyptian stocks should be. Authorized participants are currently unable to trade the underlying market to capitalize on the arbitrage opportunity.

The current discount also suggests ETF investors believe that Egyptian stocks’ last closing price is overvalued and slated to fall once markets open.

Market Vectors Egypt ETF

For more information on Egypt, visit our Egypt category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.