Besides rattling investors, the recent protests in Egypt have provided a few other object lessons, particularly for investors in frontier market exchange traded funds (ETFs).
Tamer El Ghobasky and Christopher Rhoads for The Wall Street Journal report that daily life in Egypt and North Africa may be merging back to normal. The uprising is in its third week, but things appear to be returning to some semblance of normalcy. [Shipping ETFs Get Disrupted By Egypt.]
For one, banks have reopened for the first time in more than a week. Egyptians took the opportunity to get access to their money – something many lacked when the banks were closed. The stock market is still closed, however, but some estimate that it could reopen as soon as Wednesday.
As daily life in Egypt returns to (somewhat) normal, let’s take stock of some of the lessons the market taught us:
- Geopolitical risk is real. Emerging and frontier markets are typically viewed as fast-growing economies, and that they are. But there’s a dark side to that growth in some of these economies, too. Their governments commonly are no strangers to political corruption and social unrest.
- Commodity contagion. Drew Carter for Pensions and Investments remarks that more unrest in Egypt could trigger even higher oil and food prices, among other economic changes, so wealth managers and pension funds are keeping a watchful eye on markets and any decisions made by developed markets in response. [5 ETFs To Watch As Egypt Protests Intensify.]
- Global contagion. The fighting in Egypt wasn’t just an Egypt problem. The effects of the chaos, both good and bad, were felt throughout the markets. iShares MSCI Turkey (NYSEArca: TUR) was one beneficiary of the fighting, gaining 7.3% last week, while iShares MSCI Israel (NYSEArca: EIS) lost 2%.
- Investors believe in emerging markets. Despite the turmoil in Egypt, few ran screaming from Market Vectors Egypt (NYSEArca: EGPT). True, it did dip for a couple days last week, but by and large this fund and most other emerging market ETFs held their ground.
- The U.S. is starting to weather turmoil better. Two years ago, investors’ nerves were so frayed that unrest like this could have sparked a major sell-off in domestic markets. Could it be that we’re finally starting to calm down and take bad news in stride? Could be – last week, the SPDR S&P 500 (NYSEArca: SPY) gained 2.7% in spite of it all.
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.