In a recently released Cabinets report about the performance of the Egyptian economy, Egypt’s economy experienced an average 7.2% growth rate the last fiscal year (2007-2008) after 4.5% growth in 2004-2005, according to iStockAnalyst.

The growth in Egypt was attributed to the advancement of Gamal Mubarak in the ruling National Democratic party’s (NDP) and the free-market capitalism he espoused, reports Sora Khorshid for The Guardian. However:

• The neoliberal economic reforms are said to have harmed ordinary citizens while benefiting the well-connected.
• Transparency International ranks Egypt 115 out of 180 countries in the 2008 Corruption Perception Index.
• In a 2007 cabinet poll, 75% Egyptians believe corruption is prevalent, especially between the regime and businessmen.
• Around 20% of Egyptians own 80% of the country’s accumulated wealth. 43% of Egyptians live on less than $2 a day and 28.6% are illiterate.

Labor strikes are now frequently held as a popular sign of anger with the regime. The regime has continued to crack down on the opposition. This unrest could ultimately weigh on not only the Egyptian economy, but its related ETFs. On the plus side, ETFs focused on this region are diversified, thus spreading out the risk among several countries instead of just one.

As a frontier market, Egypt has the potential to be volatile. If this is an area of the world you’re considering, have an exit strategy in place to protect yourself.

• SPDR S&P Emerging Middle East & Africa (GAF): up 29.8% year-to-date; Egypt is 5.6%

• Market Vectors Africa ETF (AFK): up 29.3% year-to-date; Egypt is 14.2%

• Claymore/BNY Mellon Frontier Markets (FRN): up 34.2% year-to-date; Egypt is 15.7%

For more information on Africa, visit our Africa category.

Max Chen contributed to this article.

Global X Management, a New-York based startup, has launched its first exchange traded fund (ETF) and has decided to enter a niche market where others have failed.

The asset management firm has registered to sell ETFs in targeting six different markets.  These markets include Colombia, the Philippines, Peru, Argentina, Egypt and the Nordic countries.  The ETF that tracks the Colombian market, Global X/InterBolsa Colombia 20 ETF (GXG), actually launched last month and was the first of its kind to give investors pure exposure to the emerging market.

Global X is not the first to dip into this market. Northern Trust took a stab at it last year and ended up throwing in the towel earlier this month and closing all 17 of their NETS funds, citing lack of assets and deteriorating market conditions.

A challenged market is something Global X is up against, too, but the provider is optimistic about its prospects when a turnaround begins. While Colombia is a frontier market, there are well-run publicly traded companies there. And Colombia will emerge from the stigma as the world’s cocaine capital. Remember: India, China and Brazil at one time had bad reputations to overcome, too.

So what will differentiate Global X from Northern Trust? Murray Coleman of Index Universe states the following:

• Global X’s managers are going to be patient and not flood the market by launching a dozen or more ETFs at the same time, as Northern Trust did.

• There will be uncontested opportunity for the firm. The only competition will come from Barclays, which has filed for an ETF to track Peru and Market Vectors, which has filed for an ETF to track Egypt. No one else has even dared to consider the other markets.

• The company plans on dual listing its ETFs in the United States and in the country that the ETF is tracking. In fact, the company’s Colombia ETF is nearing a listing on the Bolsa Exchange.

• Using FTSE to design its specific indexes will attract ETF investors around the globe.

It seems like the firm has found a pretty nice niche for themselves, but it will most definitely be an uphill battle. With the current market volatility, investor sentiment and global economic recession, it will be a tough sell to convince investors to take a risk on these emerging markets.

For those of you that do want exposure to these markets, this may be the way to go.  Remember to always know what your fund is holding and what its asset distribution percentages are.

Visitors to the country might see nothing but posh beach resorts and glimmering factories, with the rumble of stable economic growth and much promise. But a closer look reveals what the masses are living, and many families will begin the day by pushing and shoving for one loaf of government-subsidized bread. Today, 44% of Egyptians still register as poor or extremely poor, reports The Economist. Most of the country’s 75 million people are struggling to get by.

As the gap between the haves and the have-nots grows wider and change appears less and less imminent, many Egyptians are opting for civil disobedience. Protests are popping up regularly, taking the form of factory strikes, land disputes and urban riots over food prices. Inflation currently sits at a whopping 23%.

Brutal policing has silenced some activists, and wage increases have calmed some tempers.

Whoever winds up running Egypt after the country’s aging president leaves office has their work cut out. ETFs that could be affected include:

• SPDR S&P Emerging Middle East and Africa (GAF): down 16.4% year-to-date; 5.2% Egypt
• Claymore/BNY Mellon Frontier Markets (FRN): launched on June 13; 17.6% in Egypt
• WisdomTree Middle East Dividend (GULF): launched July 22; 11.7% in Egypt

The WisdomTree Middle East Dividend Fund (GULF) covers the same region as S&P’s GCC40 Index, which has no ETF yet associated with it, reports ETF Guide.

The underlying index is the WisdomTree Middle East Dividend Index, which is fundamentally weighted, and measures the companies domiciled in the region that pay regular cash dividends on shares of common stock.

One hundred companies are included, based upon market capitalization and no country represents more than 33%. At re-balancing, companies must have paid out $5 million in cash dividends for the cycle prior to the next one.

The Middle East has become one of the most attractive areas in the world for investors to access, as emerging markets become more correlated with developed ones. The Middle East, in particular, is drawing interest because of its potential for growth, as well as the fact that it has largely sat out the troubles that rising energy prices have caused around the rest of the world.

WisdomTree’s Director of Research Luciano Siracusano says that it’s the only real region where stocks have gone up uniformly in recent years.

The economies there are more than just oil, too. There’s increasing diversification in the economy, an improving legal framework, an effort made to diversify the economy and a younger urban population. The economies have also started to become integrated into global banking within the last three to five years.

Companies eligible for index inclusion must be incorporated in and have their shares listed on a major stock exchange in Bahrain, Egypt, Jordan, Kuwait, Morocco, Oman, Qatar or the United Arab Emirates (including Abu Dhabi and Dubai). The fund comes with an expense ratio of 0.88% and is 36% weighted in banking, followed by telecommunications (25%).

This fund is just the latest in a series to launch that offer access to the Middle East, including:

• PowerShares Frontier Portfolio (PMNA)
• Market Vectors Africa Index (AFK)
• Claymore/BNY Mellon Frontier Markets (FRN)
• iShares MSCI Israel Cap Investable Market (EIS)
• NETS TA-25 Index Fund (TAV)
  

Market Vectors Africa Index (AFK) allows investors easy, one-stop access to the ever-growing, untapped market in Africa. The ETF tracks the Dow Jones Africa Titans 50 Index, a pan-African index. The expense ratio is 0.83%.

Nigeria is the top-weighted country, with 25.2% of the holdings. South Africa is the second-largest at 24.7%, followed by Egypt at 13.1% and Morocco at 11.4%. Banks are the top sector, at 33.7%. Basic resources follow at 18.2%; oil and gas at 13.5% and telecommunications at 10.2%.

There are other funds that have launched containing African exposure, particularly in the emerging and frontier markets area, but this is the most pure to date in an ETF.

• Claymore/BNY Mellon Frontier Markets (FRN)
• Powershares MENA Frontier Countries Portfolio (PMNA)
• iShares MSCI South Africa Index (EZA)

Many are anticipating Africa to be turning a corner because of debt reduction, strong commodity prices and increased quality of economic management.

It was 99 degrees in Cairo yesterday, but the weather isn’t the only thing that’s hot in Africa – exchange traded fund (ETF) investing is, too.

Dow Jones Indexes launched a new index today that comes out of Africa, with and exchange traded fund (ETF) to follow. Dow Jones Africa Titans 50 Index is a pan-African index that measures the stock performance of 50 companies that are headquartered in or generate a majority of their revenues in Africa.

The index includes direct or indirect exposure 11 markets in Africa: Angola, Democratic Republic of the Congo (DR Congo), Egypt, Equatorial Guinea, Ghana, Kenya, Mali, Morocco, Nigeria, South Africa and Zambia. The index has been licensed to Van Eck and the anticipated ETF is Market Vectors Africa Index (AFK).

Other ETFs holding Africa include:

• Claymore/BNY Mellon Frontier Markets (FRN)
• Powershares MENA Frontier Countries Portfolio (PMNA)
• iShares MSCI South Africa Index (EZA)

Angola trades most with Portugal and Brazil, so an economic slowdown in the country may have a negative effect on exports, reports Mario De Queiroz for AllAfrica. Forecasts are that Angola’s annual growth rate will fall by 15% by 2009.

Meanwhile, areas such as South Africa are growing strong with no sign of a recession in sight. High investment growth and massive government investment programs are boosting energy, transportation, and other infrastructure to help support the economic growth and ensure it continues, reports Gordon Bell for Reuters.

The fund was designed to give access to the Middle East and North Africa. Its heaviest weighting is in Kuwait, with 19.7% of assets, followed by United Arab Emirates (19%), Egypt (16.1%), Qatar (14.5%) and Morocco (12.2%).

Financials are the heaviest sector in the fund, at 56.1% of the assets. Telecommunications is in second, at 16.5%, followed by industrials, at 15.4%. The fund carries a 0.95% expense ratio.

There are certain foreign investment ownership limitations to be encountered upon investing in the Middle East and North Africa. PMNA represents a quality tool for accessing these hard to reach areas of the global marketplace.

This fund’s makeup differs from the other frontier markets ETF, the Claymore/BNY Mellon Frontier Markets (FRN), which is spread out across Eastern Europe, Latin America, Northern Africa and the Middle East. Its top country weightings are Poland (23.5%), Chile (21.4%) and Egypt (17.4%). The top three sectors are financials (39.8%), materials (14.5%) and telecommunications (14.3%). It comes with a 0.65% expense ratio.

Depending on which area of the frontier you’d like to access, these funds are different enough to give investors some interesting options. Investor interest in frontier markets has never been stronger, says John H. Christy for Forbes. Africa has made some promising strides in the development of its equity markets. In 1989, there were five sub-Saharan stock exchanges, and now there are 16. Christy says there is reason to be optimistic about Africa’s long-term prospects, but there’s still a lot of work to be done.

That’s likely a big reason why investors are turning an eye toward the frontier – the prospect of growth on top of growth is becoming more appealing as emerging markets become more correlated with developed ones. Just bear in mind that with increased reward potential comes increased risk.

German Chanellor Angela Merkel urged the world leaders to take a tough stance on Zimbabwe after President Robert Mugabe’s win, reports Malcolm Foster for the Associated Press. President Bush called for wealthy nations to provide mosquito nets and other aid to prevent deaths from mosquito bites.

Aid for the continent was central in the G-8 summit three years ago, when leaders pledged to increase aid by $50 billion a year by 2010, with half going directly to Africa.

Among the top African frontier markets held by the Claymore/BNY Mellon Frontier Markets (FRN) are Egypt, 17.4%, and Nigeria, 3.3%. Other countries seen in the fund in smaller amounts include: Morocco, Ghana, Kenya, Malawi and Zimbabwe.

Frontier countries are countries that are less developed than traditional emerging markets, reports David Hoffman for Investment News. An example of frontier countries can be found in the latest ETF from Claymore, the Claymore/BNY Mellon Frontier Markets ETF (FRN) which gives access to 41 economically  "newborn" countries such as Bahrain, Bangladesh, Bulgaria, Croatia, Egypt, Ghana, Kazakhstan, Lebanon and Pakistan, to name a few.

Poland is the most heavily weighted country in the fund, containing 24.9% of assets. Chile is second, with 21% of assets. As countries grow and change and move from "frontier" to "developed," the index will shift accordingly.

PowerShares, Van Eck, and WisdomTree all have frontier ETFs in the making. Emerging markets like China and Brazil are becoming more correlated with developed markets. As a result, it makes sense to move to the next level and give investors even more opportunities to broaden their horizons.

As emerging markets become more developed, it certainly makes sense that frontier markets should be included in the mix.

Claymore this morning is expected to launch the Claymore BNY/Mellon Frontier Markets ETF (FRN), the first fund of its kind. It’s made up of American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs).

Claymore President Christian Magoon told us that he feels this
untapped area of the world has a lot to give. "They offer a lot of
return and risk potential, and there’s a low correlation to developed
and emerging markets."

One issue with emerging markets, he points out, is that as they
emerge, they tend to correlate more and more closely with developed
economies – that’s not always necessarily a great thing.

The Bank of New York Mellon came up with five criteria for what
constitutes a "frontier market," and 41 countries could be classified
as such. From that, 15 countries on four continents met the criteria
for inclusion in the actual index, which were a minimum share price of
$3, market capitalization of $100 million and trading volume of 10,000
shares a day.

The top countries represented in the fund will be Poland, Chile,
Egypt, Kazakhstan, Peru and the Czech Republic. It rebalances
quarterly, and Magoon says that new stocks may be added to the fund as
they become eligible. For example, Vietnam doesn’t have any stock that
meets the criteria, but when it does, it could be added.

Different index providers have varying criteria on what a "frontier
market" is, Magoon says. For example, based on their definition,
Goldman-Sachs defines 11 countries as frontier markets. Standard &
Poor’s defines 37, and Merrill Lynch defines 17. Of the Bank of New
York/Mellon index, "We believe it’s the broadest frontier market in the
world."

The index allows for a range of frontier markets, some in the early
stages of frontier, while others are closer to the "emerging" side of
things.

This long-awaited ETF could be as interesting to watch as the countries it tracks.

Also anticipated is the PowerShares MENA Frontier Countries Portfolio (PMNA). Around 50 companies will be part of the underlying index and a majority of the assets will be in Nigeria, Egypt, Morocco, Oman, Lebanon, Jordan, Kuwait, Bahrain, Qatar and United Arab Emirates.