The exchange traded fund tracking Egyptian stocks is neck and neck with the Greek ETF for the best-performing country ETF this year with a gain of nearly 40%.

Market Vectors Egypt ETF (NYSEArca: EGPT) is enjoying a solid rally in 2012 and recently climbed above its 200-day moving average.

“Local investors and a smattering of emerging market funds have snapped up shares in the country’s blue-chip companies. After a dreadful 2011, when Egypt’s revolution and economic and financial turmoil wiped out almost half the benchmark EGX30 index’s market capitalization, the index has risen nearly 40% this year,” the Financial Times reports.

The Egypt ETF is relatively small with about $50 million in assets.

“Everyone was so negative on what could happen on the anniversary of the revolution [in late January] but when it looked like not much would happen, we have had a relief rally,” Mohamed Ebeid, head of brokerage at EFG-Hermes, Egypt’s largest investment bank, told the FT.

Yet some think the rally in Egypt’s stock market is overdone.

“Egypt’s stock market is a paradox. Political tensions are getting worse, the economy is deteriorating and foreign exchange reserves are falling dangerously low. And yet equities are up nearly 40 per cent, the biggest gain in the world for 2012,” according to a separate FT report. “Clearly investors are betting that the closer the country edges to economic collapse, the greater the chances of the politicians seeing sense and the IMF leading an early bail-out. But what if they’re wrong?”

The Egyptian ETF listed in the U.S. was launched in February 2010.

“Recent political turmoil in Egypt and in the region has significantly driven up the volatility of this fund. Even during more-stable times, the Egypt market can be very volatile. In 2008, the Egypt benchmark EGX 30 fell by around 70% (underperforming the MSCI Emerging Markets Index) and subsequently rallied about 100% until January 2011, when domestic political turmoil erupted,” Patricia Oey for Morningstar wrote in an ETF analysis.

This volatility is enough to keep investors wary that another decline is possible. [Egypt ETF Rallies 30% to Start 2012]

EGPT is heavily weighted to the financial sector, followed up by telecom service companies. Materials and industrials follow up the mentioned sectors, which gives insight into the volatility the ETF has experienced, reports Eric Dutram for Zacks. Most of the companies held by EGPT are small-cap companies which could be the reason the fund is rallying in 2012. [ETF Spotlight: Egypt]

If the political situation becomes more unstable, the ETF’s 2012 gains could come under pressure. [Egypt ETF Falls Before Elections as Violence Flares]

Market Vectors Egypt ETF

Tisha Guerrero contributed to this article.

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