ETF's or Exchange Traded Funds, which are considered to be low cost and highly efficient investment, are not that risk free, as things unfold in the political developments in countries like Egypt, Tunisia, etc., where there is civil unrest and political problems.
Egypt ETF: Trading going on in Egypt based Exchange Traded FundsWe recently covered the details about What to do when ETF Closes or Shuts down? and had listed the ETF Investments Risks & Precautions
However, the case with the latest development in the ETF markets for the case of Egypt ETF is completely different.
In this article, we discuss the Egypt ETF performance in the current scenario, and the new interesting cases which have emerged for Egypt ETF like the Van Eck Market Vectors Egypt Index exchange-trade fund EGPT.P
Let's look at the developments one by one:
First, there is a civil unrest in a country like Egypt. So what do you expect - general closure that includes closure of the country's stock exchanges.
Second, the next expectation will be that the stock market indices for that exchange will not trade, as the stock exchanges are closed. Similarly, the financial products like ETF which are based on that country's stock indices will either stop trading or will fall.
Interestingly, things have happened differently for Egypt based ETF.
First - even though the Egyptian Stock Exchanges are closed, and hence the indices are not moving, the Van Eck Market Vectors Egypt Index ETF is still trading. This is something really interesting and should be an eye-opener for people who believe that ETF's really TRACKS the underlying index.
The underlying index is shut down at the moment, but the ETF is trading and showing large swings in either direction.
So what's the price driving factor for this ETF in such times? There is no definitive answer to it, but the market experts claim that the prices are moving based on speculation, fear on the downside and greed and some so called algorithms for pricing models on the upside.
In essence, there is no surity of anything.
Another important fact to note - the prices of this Van Eck Market Vectors Egypt Index ETF have shown large swings - both on the positive side and the negative side. On Friday, this was down in big no. while on Monday, it managed to cut back its losses and gained around 6.5%.
Now that's interesting.
So what is happening on this trading for Van Eck Market Vectors Egypt ETF?
Investors and traders feel that the civil unrest is temporary and they are using it as a buying opportunity. The general perception going on in the market is that "Egypt is too large country to fail". (Really? I beg to differ)
This might be perceived as a positive sign in market.
Not only that, the SPDR S&P ETF which is for emerging Middle East & Africa has shown positive price movement.
Although Van Eck is reported to have put on hold the creation of new ETF units for Egypt ETF, the redemption is still going on. Hence, the ETF is learnt to be trading at a premium.
Common investors are advised to be cautious on trading in such turbulent times