Market Overview

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Eurozone member Greece was not the only country to hold elections on Sunday that are viewed as crucial by international observers. A boat trip south across the Mediterranean Sea takes one to Egypt, which held the final day of a presidential run-off Sunday.

In other words, the Global X FTSE Greece 20 ETF (NYSE: GREK) will not be the only country-specific ETF to keep an eye on come Monday. GREK might have to share the spotlight with the Market Vectors Egypt ETF (NYSE: EGPT), the lone ETF devoted exclusively to the largest Arab state.

The contest between Muslim Brotherhood candidate Mohammed Morsi and Ahmed Shafiq, deposed President Hosni Mubarak's last prime minister, in what is being called Egypt's first democratic presidential election resembles a lesser of two evils scenario. Some Egyptians may apt to say the candidates represent a possible return to the old way of doing business or a possible move to an extreme religious state.

Investors and traders have already shown their distaste for the possible outcomes in Egypt. As Benzinga reported on May 29 after it became clear Egyptians would have to pick between Morsi and Shafiq, the Market Vectors Egypt ETF sold-off. Since May 29, the ETF has plunged almost 13 percent.

With Friday's close below $11, EGPT trades below its Arab Spring lows. Now vulnerable on a technical basis, the ETF could return to its 2011 lows around the $9.50 area should political volatility continue in the North African nation.

Egypt and its faltering economy need some semblance of political stability, something the nation has craved, but lacked since Mubarak was removed from power. In what some analysts and observers have deemed a "soft coup," Egypt's parliament was dissolved last week. The Supreme Council of Armed Forces is expected to introduce declarations that will allow the council to act in place of a parliament as well as granting the group budgetary powers, the Wall Street Journal reported.

The decree also will give the military the authority to compose the constituent assembly that will draft Egypt's new constitution, according to the Journal. EGPT plunged 4.8 percent over the final two trading days of last week following news that parliament had been dissolved.

Amid accusations of voter fraud and the military's heavy hand in Sunday's run-off, various international media outlets have reported voter turnout has been light in Egypt. The damage for Egyptian equities and, by virtue, EGPT may already be done.

Markets hate uncertainty, particularly that of the political variety, but that is exactly what Egypt has delivered. As a result, the International Monetary Fund in April forecast 2012 Egyptian GDP growth of 1.5 percent down from a 2011 estimate of 1.8 percent. On Sunday, Egyptian central bank Governor Farouk El-Okdah said he believes growth will slow to 2 percent this year from 2.5 percent last year.

The lower growth forecasts add to other economic woes such as a 10.4 percent unemployment rate at the end of 2011 and a 2012 inflation forecast of 8.3 percent, two statistics that indicate regardless of the outcome of the run-off, EGPT is more "sell" than "buy."

Other ETFs with large allocations to Egypt include the Market Vectors Africa Index ETF (NYSE: AFK), the Guggenheim Frontier Markets ETF (NYSE: FRN) and the PowerShares MENA Frontier Countries ETF (Nasdaq: PMNA).

For more on Egypt and ETFs, click HERE.

Posted-In: Long Ideas News Short Ideas Wall Street Journal Emerging Market ETFs Technicals Politics Events Best of Benzinga

 

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