Middle East ETFs In Focus As BlackBerry Showdown Looms

by on August 4, 2010 | ETFs Mentioned:

For businessmen and women who regularly travel to the Middle East, last week saw the unveiling of a nightmare: a BlackBerry blackout across much of the region starting later this year. The United Arab Emirates announced recently that it will begin banning users of BlackBerry mobile phones from using email, instant messaging, and web browsing services beginning in October, escalating the long running dispute with Research In Motion (RIMM), the manufacturer of the devices. Saudi Arabia has announced that it will join the UAE in its crackdown on BlackBerry devices.

The disagreement centers around the encryption technology used by BlackBerry devices that makes them difficult to monitor and the fact that certain data is stored offshore. Because BlackBerry phones access the internet and email through RIM’s own network, they are more secure than other smartphones. But some governments worry that the set-up limits their ability to monitor the communications of terrorists and other criminals [also read Tech ETFs In Focus As RIMM Takes A Bite Out Of Apple].

Pro-Business Rep On The Line

While the potential ban on BlackBerry use may seem like a company-specific development, it could have a much broader impact on the regional economy. The UAE economy–and the economies of other Middle East states–have thrived in part because they are viewed as modern, business-friendly environments. That reputation is now in jeopardy, and could be irreparably damaged in coming months if no compromise is reached.

An inability to access BlackBerry services obviously won’t cripple the economies of the UAE and others that follow suit. But some worry that such a move would set a dangerous precedent for government intervention.

Most analysts expect that the UAE and BlackBerry maker RIMM will strike some sort of deal before the October 11 deadline. “We remain open to discussions in order that an acceptable, regulatory-compliant solution might be developed and applied,” said Mohammed Al Ghanem, director general of the Telecommunications Regulatory Authority [also read Middle East ETFs Make A Comeback].

Middle East ETF Options

For investors looking to establish exposure (either long or short) to the Middle East economy, there are a few interesting options out there [see all ETFs with UAE exposure or use the new country lookup tool to target any region around the world]:

  • Market Vectors Gulf States Index (MES): This ETF tracks the performance of the Dow Jones GCC Titans 40 Index, a benchmark that includes publicly traded companies headquartered in countries belonging to the Gulf Cooperation Council; the largest weightings are given to Kuwait (40%), the UAE (26%) and Qatar (22%).

  • PowerShares MENA Frontier Countries Portfolio (PMNA): This ETF isn’t specific to the Middle East, offering exposure to frontier markets around the globe. The Middle East accounts for a big slug of total holdings, making up more than 60% of fund assets. From a sector perspective, financials make up the bulk of this fund, suggesting that this fund stands to be impacted by the ultimate resolution of the BlackBerry showdown.

  • WisdomTree Middle East Dividend ETF (GULF): This fundamentally-weighted ETF tracks the exposure of the WisdomTree Middle East Dividend Index, a benchmark that includes heavy allocations to the telecom and financial industries (these two sectors make up about 75% of holdings).

Disclosure: No positions at time of writing.