Egyptian Equities: A Unique Investment Opportunity

Breaking down EGPT

To allow US investors to gain exposure to the Egyptian stock market, VanEck launched the VanEck Egypt Index ETF in February 2010.

Let’s break down VanEck’s EGPT ETF more closely.

The fund seeks to replicate the performance of the MVIS Egypt Index, which includes securities of companies incorporated in Egypt, or if incorporated outside of Egypt, maintain at least 50% of their revenues/related assets in Egypt.

• AUM: $30 million
• Expense Ratio: 1.1%
• Number of Holdings: 26
• Currency: USD
• YTD Performance: -5.5%

EGPT’s top sector holdings include those in the Materials, Real Estate and Financials sectors.

Source: VanEck

EGPT’s top five holdings include:

1. Commercial International Bank of Egypt (10.3% of market value)
2. Egypt Kuwait Holding co. (8.5% of market value)
3. Abou Kir Fertil & Chemicals (7.3% of market value)
4. Eastern Co. (7.1% of market value)
5. Tallat Moustafa Group (5.6% of market value)

Since its inception, the fund has not performed well, losing ~76% of its value—however, there are multiple catalysts that could help this ETF to succeed going forward:

1. Interest Rate Environment. Egypt’s central bank has been hiking rates along with the rest of the developed world. This interest rate climate should actually benefit the Financials sector - one of the fund’s largest weightings.
2. Return of Tourism. A decent chunk of Egypt’s GDP is anchored in tourism. As Covid-19 restrictions have loosened, Egypt may see this share of its GDP return to strength.
3. Materials Demand. Egypt is a large exporter of petroleum products, phosphates and iron ore. With the reopening of the Chinese economy, these exports should see an uplift in demand that could lift the performance of EGPT.

Risks of investing in Egypt

As mentioned above, EGPT has not performed well since its inception and there is a likelihood that this trend may continue if the Egyptian market does not garner interest from international investors. Additional risk factors associated with this emerging economy include: 

Political climate

While there is less political instability relative to neighboring countries, Egypt’s political climate is still fairly unstable – as is the case with many emerging economies - when compared to more developed nations.

Concentrated risks

Egypt’s public financial market is not particularly developed, consequently there are few large companies in which to invest and potentially spread risk across.

Importance of international diversification

While investing in a developing economy such as Egypt remains a high-risk strategy - where any potential investment in the market should be thoughtfully considered as part of a much broader portfolio of assets – there are potential growth and diversification benefits for the advanced investor. 

However, few US investors consider Africa or the Middle East due to limited investment options and challenges with transparency. With their broad diversification and liquidity characteristics, ETFs offer a more convenient and lower-risk way to access the growth opportunities these regions may offer and offer a level of comfort that the respective ETF issuer will conduct necessary due diligence on constituents.

Data as of January 25, 2023.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.