Investing in the ‘Islamic Triangle’ ETFs
September 22nd 2010 at 12:00pm by Tom Lydon
Investors who want greater diversification in their portfolios need to think globally. Keeping that in mind, investors may want to consider investing in the “Islamic Triangle” or exchange traded funds (ETFs) that cover the Middle East North Africa (MENA) area.
First off, countries in the Middle East, around half of the 20 in the Islamic Triangle area, have tied their currencies to the U.S. dollar, and the low interest rate environment in the U.S. reflates these countries faster as a result of little or no structural problems, remarks Douglas Clark Johnson for Advisor Perspectives. [Middle East ETFs: A Good Area To Invest?]
Before the crisis, countries in the region enjoyed healthy gains that were backed oil prices and liberalization of the markets. Current sideways trading may have set a stock-price floor that is ready to support any optimistic sentiments, adds Johnson. [Africa ETFs: Dogged by the Past.]
Rebalancing of local economies or strengthening activity in Europe – Europe is a major trading partner for some Mid East countries – may bring investors back to the Islamic Triangle markets. Egypt, with its strong asset quality as supported by its stronger banking sector, seems to be leading the region. Higher commodity prices, more notably oil, will also help support investor sentiment for the area. [Emerging Market ETFs Raking in Assets.]
Additionally, youths ages 15 to 24 in the Islamic Triangle make up 30% of the population, or twice the proportion in the developed world. However, the Middle East and North Africa are home to some of the highest youth unemployment rates at 23% to 24%. The Islamic finance sector is also a dominating factor that will further aid the service industry, with principles of sharing risk and avoiding speculation.
It also doesn’t hurt that investments in MENA countries average dividend yields of 5.7%. But potential investors should note that emerging market areas tend to have high risks in their investments as compared to developed markets.
For more information on the Middle East, visit our Middle East category. Some of the ETFs that will give you at least partial exposure to these countries include:
- Claymore/BNY Mellon Frontier Markets ETF (NYSEArca: FRN)
- SPDR S&P Emerging Middle East & Africa ETF (NYSEArca: GAF)
- Market Vectors Africa Index ETF (NYSEArca: AFK)
- WisdomTree Middle East Dividend ETF (NYSEArca: GULF)
- Van Eck Market Vectors Gulf States ETF (NYSEArca: MES)
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.