Pickup in sentiment on ETFs tracking Egypt is likely to be brief, as active investors use these funds to make short-term profit, according to industry experts.
Van Eck's Market Vectors Egypt Index fund, the only ETF exclusively tracking the country, has seen its underlying proprietary index drop from around 1190 points before protests began in Egypt down to an all-time low of 914.36 on Monday, but this has not stopped investors buying back into the fund over the last few days.
However, Laurent Kssis, head of ETF sales trading at LaBranche Structure Products says: "At the moment the dust is settling and some people are getting back into the fund because they see it as cheap".
Yet he adds that value buying is unlikely to continue. "There is continued uncertainty and until a clear political decision is made, people are generally going to be reducing their exposure."
With the share price plummeting, buying on the fund is likely to be from active investors looking for a temporary play to make money.
Stock exhcanges in Egypt have been closed since 30 January, completing a week without trading, meaning the ETF represents one of the only opportunities for investors to take exposure to Egyptian equities. As investors scramble to get out - and in - to the market, trading volumes on the ETF have shot up to around one million shares per day from a previous average of around 25,000-30,000.
Van Eck suspended new creation orders on the ETF on Monday as a result of the stock market closure, but redemption orders are still being accepted and individual investors can buy and sell the ETF in the secondary market.
This disparity has pushed up the fund's price, leaving it trading at a premium of around 12% to its net asset value.
Elsewhere in the industry, ETF Securities says unrest in Egypt explains increased flows in the firm's oil ETCs. Its latest Commodities ETC Weekly reports $25.3m of inflows into its energy ETP platform, a turnaround of the performance seen previously this year.
ETFS Crude Oil and Leveraged Crude Oil topped leaderboards for flows into individual products. ETFS Leveraged Crude Oil attracted pronounced flows of $24.5m, the equivalent of almost a quarter of the fund's total assets under management (AUM), suggesting that investors are looking to make short-term gains on the situation.
Flows into the company's Brent funds accompanied outflows from West Texas Intermediate (WTI) funds, closely reflecting the global picture. Brent crude rallied today to a 28-month high of $103.37 a barrel, while WTI is benefiting from an abundant inventory cushion.
As for the coming weeks, Kssis says the ETF business is unlikely to register an immediate effect from events in Europe. Other ETFs do have significant investments in Egyptian stocks, but diversified portfolios mean they do not react to single risk as significantly.
In Europe, the Lyxor ETF Pan Africa has a weighting of just under 10% in Egypt. That fund has also seen sell-offs in the past week, but Kssis emphasises that this is often seen during periods of rebalancing at the end of the month. He says: "We've not seen a constant outflow from the Lyxor fund; it's been sporadic, and most of the activity was month-end."
The Market Vectors Egypt Index ETF meanwhile has lost 20% of its AUM since 14 January, with performance down about 22%. iShares filed to launch a rival MSCI Egypt Capped Investable Market Index Fund around this time last year. It does not look likely to come out of the planning stages soon.
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