Israel, Turkey ETFs In Focus As Another Showdown Looms

by on June 4, 2010 | ETFs Mentioned:

With the fallout from last week’s conflict between the Israeli navy and a flotilla seeking to deliver aid to the Gaza Strip still raining down on the Middle East, the next escalation of tensions may not be far off. An Irish ship carrying pro-Palestinian activists and supplies was closing in on Gaza Friday afternoon, and Prime Minister Benjamin Netanyahu had vowed to intercept the vessel before it reached its destination.

The Rachel Corrie, named after an American student killed in the Gaza Strip by and Israel Defense Forces bulldozer, was reportedly carrying about 20 passengers and crew, most of them Irish citizens. Medical supplies, toys, and cement were also on board, scheduled to be delivered to the blockaded area now controlled by Hamas. Israel had offered to allow the ship to dock in the port of Ashdod, and said that it would deliver the aid to Gaza after inspection. “We have no desire for a confrontation,” said Israeli’s foreign ministry in a statement Friday. “We have no desire to board the ship.” But a spokesman for the government noted that if the ship refused to dock before reaching Gaza “we will intercept.”

Middle East ETFs In Focus

The escalation in tensions added additional pressure to regional stocks already reeling from concerns about halting growth in the euro zone. As criticism from both allies and traditional foes mounted over the past week, the iShares MSCI Israel ETF (EIS) has seen volumes surge, trading up to five times the daily average for much of this week. EIS sunk by almost 5% immediately after the the first flotilla was intercepted and the initial wave of casualties was reported, but had claimed back some of that ground in subsequent sessions. The Israel ETF was once again sharply lower on Friday, as investors braced for another conflict at sea (see Israel ETF Plunges After Deaths At Sea).

Another ETF to watch as this drama plays out is the iShares MSCI Turkey Investable Market Index Fund (TUR). Tensions between Turkey and Israel seemed to be on the mend in recent months, with the historical rivals scheduled to cooperate in military exercises. But the events of the last week have reportedly moved Turkey to the brink of severing relations with Israel. “Israel cannot find any better friend in the region than Turkey,” said Namik Tan, the Turkish ambassador to the U.S. to a group of reporters on Friday. “And Israel is about to lose that friend.” Demanding that Israel apologize for the death of Turkish citizens aboard the flotilla last week, Tan noted that overwhelming public outrage in Turkey may force the government to sever the relationship.

TUR tracks the MSCI Turkey Investable Market Index, a benchmark made up of about 100 of the largest companies listed of Turkish stock exchanges. TUR, which has been one of the top-performing equity ETFs over the last year, was down nearly 5% in Friday trading, as anxiety over the impact of the economic impact of the sudden rift with Israel intensified.

Disclosure: No positions at time of writing.