The U.S. financial services sector has gotten plenty of attention this year. Returns accrued by major exchange traded funds tracking the sector justify the adulation.
Some would even argue that U.S. bank stocks are not getting the respect they deserve. Others point to the recovery in European bank shares as a positive catalyst for Eurozone equities heading into 2014. [Financials Getting no Respect]
Another corner of the globe, one often overlooked by Western investors, is home to a stable banking system that offers opportunity and is accessible via exchange traded funds. Yes, the some nations in the Middle East have stable banking systems. At least according to Fitch Ratings.
“Fitch Ratings says the rating outlook for almost all banks in the Gulf Cooperation Council (GCC) region is stable, largely driven by the probability of sovereign support. Regional unrest has a negative impact on banks’ rating outlooks elsewhere in the Middle East,” according to a statement from the ratings agency.
The key words there are GCC and “almost all.”
“For instance, Fitch believes that there is a more positive trend in the UAE, Saudi Arabia and Kuwait. Qatari banks also benefit from a supportive environment, although rapid growth may result in capacity limitations and asset quality problems,” according to Fitch. The ratings agency is less enthused by banks in Egypt, Jordan and Lebanon.
Stocks in Qatar and UAE surged and soared to prominence earlier this year in anticipation of index provider MSCI upgrading the countries to emerging markets from frontier status. MSCI obliged, but that has some market observers worried about the impact the looming departure of those countries will have on major frontier markets indices. [Frontier Markets Pricier Than Emerging Rivals]
Investors can still gain ample access to Qatar, UAE and Kuwait’s equity markets (Kuwait will remain a frontier market and those countries’ financial services sectors through at least two ETFs: The WisdomTree Middle East Dividend Fund (NasdaqGS: GULF) and the Market Vectors Gulf States Index ETF (NYSEArca: MES).
Both ETFs are small by assets, but MES is up 6.4% in the past month and hit a new two-year high Wednesday after being identified as being on the cusp of a breakout earlier this month. [Stealth Rally for Gulf States ETF]
UAE, Qatar and Kuwait combine for 84.5% of MES’ country weight and the ETF allocates almost 62% of its sector weight to financial services names.
GULF, which has surged 35.2% in the past year, has a 57.6% weight to the financial services sector and allocates about 73% of geographic weight to Qatar, UAE and Kuwait. Plus, GULF compensates investors for taking on the risks inherent with investing in the Middle East as the ETF features a 5% 30-day SEC yield.
WisdomTree Middle East Dividend Fund
