After soaring since early 2013, frontier markets exchange traded funds and dedicated Middle East ETFs could face a near-term pullback on news that BlackRock (NYSE: BLK) has reduced its exposure to shares in the United Arab Emirates.
BlackRock, the world’s largest asset manager, reduced its holdings in UAE shares, citing “speculative excess,” Bloomberg reported. The DFM General Index, the benchmark index in Dubai, fell 1.4% on the news while stocks in Abu Dhabi lost nearly 1%.
BlackRock Frontiers Investment Trust, home to $297 million in assets, said it substantially reduced its UAE exposure last month, according to Bloomberg. Still classified as frontier markets, Qatar and UAE have seen investors bid up their equity markets since early 2013 due in part to low correlations to developed and emerging market stocks and strong currencies.
Persian Gulf countries peg their currencies to the U.S. dollar since earnings from energy exports are denominated in the U.S. currency and many Gulf states sport account surpluses, indicating a lack of dependence on external financing, prized traits in the current market environment. [Stable Frontier Currencies Lure Investors]
Those features have boosted ETFs such as the iShares MSCI Frontier 100 ETF (NYSEArca: FM), the Market Vectors Gulf States Index ETF (NYSEArca: MES) and the WisdomTree Middle East Dividend Fund (NasdaqGS: GULF), all of which have significant UAE exposure. For example, UAE is GULF’s second-largest country weight at 26.5% while FM allocates 17.5% to UAE. [Teeing Off With GULF]