Courtesy of John Nyaradi
No doubt we live in fascinating times, both economically and politically, and this week the world’s focus turned to the rolling political revolution and unrest in North Africa. The outbursts started in Tunisia with the ouster of a long standing authoritarian leader and have now spread across the north coast of the continent to Yemen and Egypt, both homes to long standing rulers in countries suffering from authoritarian rule, depressed living standards and high costs for food.
The political response has been fascinating to watch as internet and telephone coverage has been cut off in Egypt, along with reported service disruptions in Syria, since high speed communication and social media seem to be prime abettors of the spread of unrest and revolution in today’s wired age.
For investors, such situations present immense danger as political instability almost always leads to economic instability, but with today’s sophisticated investing and trading tools, new opportunities constantly appear, even a fire spreads across the Middle East.
Several exchange traded funds are worthy of consideration for investors/traders with a solid plan and willing to play with fire as these rolling revolutions unfold.
The most obvious ETF and the one closest to ground zero is EGPT, the Market Vectors Egypt Index.
Chart courtesy of StockCharts.com
Not surprisingly, EGPT has been in freefall in recent days and volume has spiked to more than 400,000 shares on Friday compared to normal volume of 25,000.
For participants who think the worst is yet to come, one obvious strategy would be to “short” EGPT, while people who think that calm might be restored in short order could find EGPT to be an attractive, now vastly oversold opportunity that could come roaring back if/when the political situation is stabilized.
Another option to consider if you are bearish on the region is an inverse exchange traded fund with some exposure to this market. One possibility would be EFZ, the ProShares Short MSCI EAFE exchange traded fund.
Chart courtesy of StockCharts.com
This ETF tracks the MSCI Europe, Africa and Far East Index and, while not specifically focused on the Middle East, includes such companies as Vodaphone which is the cell phone provider that was cut off in Egypt and countries like Greece, Spain, Italy and Israel that have exposure along the Mediterranean.
Finally with civil unrest now approaching and including the oil producing countries and Suez Canal, one obvious consideration would be the potential for rising oil prices if the conflicts continue.
USO, the exchange traded fund known as United States Oil, is designed to track the price of West Texas Intermediate Crude and is seeing active interest during Friday’s session.
Chart courtesy of StockCharts.com
So, as always, danger always brings with it commensurate opportunity and there will be winners and losers on both sides of the trade. The situation in the Middle East is a fast moving, highly volatile and dynamic political drama, and venturing into this region isn’t for the faint hearted or risk averse. However, one thing is certain and that is that the old forces of risk and reward will be at work as this fascinating drama plays out over coming days.
Disclosure: No positions in ETFs mentioned. Wall Street Sector Selector actively trades a wide range of exchange traded funds and positions can change at any time.
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