Is Egypt ETF a good buy?

With Cairo's stock market closed and the manager putting a 'fair value' on constituent shares of this fund, it's hard to tell.

By InvestorPlace Feb 2, 2011 3:04PM

By Jeff Reeves, editor of InvestorPlace.com


While there's volatility in the streets of Egypt, there's also a lot of volatility in a prominent Egypt-focused ETF fund.


Specifically, the Market Vectors Egypt Index fund (EGPT) has been whipsawed by events, losing or gaining significant amounts in recent trading session.


So what's the verdict on EGPT today? Is it a good buy or a risky gamble?


First let's look at the recent cycle of volatility:

  • From Monday January 24 to Friday January 28, the EGPT fund shed -13% as news of the turmoil emerged.
  • On Monday, the fund was up 8% on heavy volume as the dust settled.
  • On Tuesday, the ETF was up 5% on news that Mubarak would not seek re-election and ease curfew and Internet restrictions.
  • Today, shares are off -2% on fears of unrest growing rather than subsiding.

What’s more, these moves have all been made on heavy volume. According to fund manager Van Eck, over 800,000 shares of the exchange traded fund changed hands on Monday. That’s a massive leap above previous average daily volumes in the ballpark of 10,000.

So are the buyers making a wise move at the bottom? Are sellers smart to abandon their shares? Or is it just the traders making moves hour-by-hour that are the winners here?

Well, consider that the Cairo stock exchange has been closed since Thursday due to the government crisis. That means no moves up or down have been possible for many constituent companies. The movement in the ETF isn’t based on actual stock performance of component stocks.


What’s more, according to the Wall Street Journal, a Van Eck spokesman says it is estimating "fair value" with the help of an outside company. How the heck are you supposed to measure the “fair value” of a company in a country that could face political upheaval or even civil war?

The icing on the cake? Almost half of the fund is invested in Egypt financials. As we’ve seen in other troubled nations, the banks tend to take the brunt of the fallout when upheaval rears its ugly head. They could be fine if there’s a peaceful handover of power – but these financials also could take a beating. To be that weighted in the financial sector leaves the ETF open to either great success or great failure but little in between.

So in a nutshell, the answer of whether or not this ETF is a good investment or not is impossible to answer. There are just too many uncertainties in Egypt right now, and the recent up-and-down in share prices is based on guesswork and not the real ebb and flow of this fund’s future prospects.

But when you think about it, I guess that means the ETF is a horrible investment. For investors, nothing is worse than uncertainty – and the Market Vectors Egypt Index fund is a case study in doubt and fuzzy math.


Jeff Reeves is editor of InvestorPlace.com. Follow him on Twitter or write to him at investingwithjeff@gm​ail.com.

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