Uncertainty In Egypt: Three ETFs To Watch

by on August 18, 2009 | ETFs Mentioned:

News that the Egyptian President is visiting Washington to meet with President Obama is certain to be major news in the north African nation. But coverage of Hosni Mubarak’s trip to D.C. this week has been focused not on the topics to be covered with Obama (the two leaders will discuss the Middle East peace process), but rather on Mubarak’s choice of traveling companion. Gamal Mubarak is joining his father on the trip, a move that many see as the strongest indication yet that the 81-year old leader will turn over control of Egypt to his son, perhaps in the not-so-distant future. The elder Mubarak has never appointed a vice president or publicly stated his preference for a successor.

The Great Sphinx Of GizaDespite the presence of Gamal Mubarak, many Egyptians believe that the next president must and will come from the military. Issnadr Amrani at Foreign Policy Magazine believes that many Egyptians “worry that a Syrian-style inheritance-of-power scenario would usher in an era of instability.” If this is indeed the case, the most likely option would appear to be Omar Suleiman, the head of Egypt’s General Intelligence Service (GIS), who is also accompanying his president to Washington this week.

Unlike the younger Mubarak, Suleiman has a wealth of political and military experience. Amrani notes that the GIS “combines the intelligence-gathering elements of the CIA, the counterterrorism role of the FBI, the protection duties of the Secret Service, and the high-level diplomacy of the State Department.” Suleiman, who attended the John F. Kennedy Special Warfare School and Center at Fort Bragg, N.C. in the 1980s, has been responsible for mediating the Israeli-Palestinian conflict, a major national security concern for Egypt.

Although Suleiman has gained the support of many throughout Egypt, his path to the presidency faces numerous roadblocks, the most significant of which may be the need for support from many Mubarak loyalists for inclusion on a ballot. As such, it is possible that Suleiman’s ascension to the presidency would only be possible through a coup, which some believe may be welcomed by many Egyptians.

ETF Plays On Egypt

With President Mubarak appearing increasingly frail, Egypt seems as if it may be headed for a period of turmoil, with a struggle for power following his death a very real possibility. While there are no pure-play Egypt ETFs available, there are a number of funds offering significant exposure to the Egyptian equity markets. Three ways to invest in Egypt through ETFs:

  • Van Eck Market Vectors Africa Index ETF (AFK): AFK invests exclusively in African economies, including South Africa (30%), Nigeria (20%), and Egypt (14%). The index underlying the ETF is comprised of 50 companies, and has a tilt towards mid-cap stocks and the financial sector. AFK has an expense ratio of 0.88%, and has gained about 27% in 2009.


  • Claymore/BNY Mellon Frontier Markets ETF (FRN): The first ETF to offer U.S. investors exposure to frontier markets (which are one level below “emerging” status), FRN is most heavily-weighted towards Chile (33.6%), Poland (15.1%), and Egypt (15.0%). FRN has jumped more than 30% in 2009.


  • PowerShares MENA Frontier Countries Portfolio (PMNA): Based on the NASDAQ OMX Middle East North Africa Index, PMNA has heavy holdings in Kuwait (23.2%), Egypt (22.7%), and the UAE (16.1%). PMNA is heavily invested in the financial sector (nearly 48% of holdings), and has an expense ratio of 0.95%. PMNA has gained about 5% this year.


Disclosure: No positions at time of writing.