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Egypt has become the center of the news world over the last week, as a series of violent protests and intensifying calls for a regime change have left the future of one of Africa's most populous countries in doubt. Though violence has been limited to a relatively small number of incidents, protesters have continued to take to the streets to decry what they perceive to be years of economic mismanagement under what amounts to a dictatorship. The U.S. and other countries have begun to call for their citizens to leave the country, while toeing a delicate line in terms of involvement in the conflict.
Egypt is a relatively small economy, with a GDP of just about $200 billion. But the economic impact of the ongoing protests and uncertainty goes far beyond Egyptian borders, affecting broader financial markets in recent days. "The turmoil in Egypt is reverberating around the world, battering stock markets, driving up oil prices and raising questions about whether the rising cost of crude could slow the global economy," writes Chip Cummins. Below we highlight five ETFs that figure to be in focus until the situation is resolved, including funds that have both thrived and suffered from the recent chaos [for more actionable ETF ideas, sign up for our free ETF newsletter].
Market Vectors Egypt Index ETF (NYSE: EGPT )
The Egyptian economy has been battered by the recent chaos, as evidenced by the steep declines in the U.S.-listed ETF offering exposure to Egyptian companies. EGPT seeks to replicate the Market Vectors Egypt Index, a benchmark comprised of companies that are listed on an exchange in Egypt or generate at least 50% of their revenues in the country. Financials make up the biggest slice of EGPT from a sector perspective, with industrial materials also accounting for a major portion of portfolio assets [see all EGPT holdings].
The Egyptian stock market has been closed in recent sessions amidst the chaos, but that hasn't stopped EGPT from plummeting. The fund lost almost 14% last week, drawing attention from bargain hunters looking to act out an old Warren Buffett mantra and be "greedy when others are fearful." [also read Egyptian ETF Crumbles as Tunisian Protests Spread]
Guggenheim Shipping ETF (NYSE: SEA )
The connection between the deteriorating situation in Egypt and this sector-specific ETF may seem unlikely, especially considering that Greek companies account for the largest allocation of SEA. But about 8% of global sea-borne trade passes through the Suez Canal, including close to 2% of global oil output. So far, it has been business as usual through the canal. But shippers are beginning to warn of additional delays and complications; the internet blackout in Egypt, for example, has made loading and unloading more time consuming processes.
SEA replicates the Delta Global Shipping Index, a benchmark that includes companies that derive a significant portion of revenues from shipping operations. If Egypt shuts down the Suez Canal or shipping companies decide to pursue alternative routes, the shipping ETF could be in for a wild ride.
United States Oil Fund (NYSE: USO )
Oil prices have spiked as a result of the protests in Egypt, the result of anxiety over more widespread instability in Egypt's oil-producing neighbors and concerns over the possible shipping delays. According to the U.S. Department of Energy, about a million barrels of crude and other refined products pass through the Suez Canal daily, with a pipeline taking another million barrels across Egypt each day. USO and other products in the Oil & Gas ETFdb Category spiked last week on Egyptian uncertainty; an escalation of the conflict could send these funds higher still, while a peaceful resolution could cause the "instability premium" to evaporate.
The instability could also have an impact on natural gas markets, as Egypt is a major exporter of that important resource. Once a largely local commodity, technological advancements have made long distance transport of liquefied natural gas possible; much of the natural gas exported by Egypt is shipped to the U.S. and Asian markets [see all natural gas ETFs].
iPath Dow Jones-UBS Grains ETN (NYSE: JJG )
Egypt is the world's largest buyer of wheat, and recent developments have set prices for the agricultural commodity sharply lower. Wheat prices fell by about 2% on Friday despite a statement from the government's official wheat buyer that it had no plans to change orders.
JJG is linked to an index that offers exposure to three futures contracts, including soybeans (about 38%) corn (about 38%), and wheat (24%). The fund has surged over the last year amidst inflationary concerns and surging demand from developing economies.
iPath Dow Jones-UBS Cotton ETN (NYSE: BAL )
Egypt is a major exporter of cotton; the term "Egyptian cotton" refers to extra long staple cotton that is grown in Egypt and is widely used in luxury brands. A prolonged period of instability could place upward pressure on cotton prices, through Egyptian supply is dwarfed by the U.S., China, and India [see Top Five Commodity ETFs of 2010].
SPDR S&P Emerging Middle East & Africa ETF (NYSE: GAF )
This ETF offers more broad-based exposure to the Middle East and Africa, a region that could obviously be impacted by the resolution to Egypt's current crisis. Many international analysts fear that an escalation of tensions or violence in Cairo and other major Egyptian cities could destabilize the entire region, especially if Egypt's peace treaty with Israel is threatened. GAF lost more than 5% of its value on Friday, though it clawed back some of those losses in Monday's trading session [see ETF Bargain Hunting: Low P/E Ratio Funds].
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Disclosure: No positions at time of writing.
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