Frontier Markets Hanging on Tunisia & Egypt Violence (AFK, EGPT, FFD)

Global violence and protests have moved from Tunisia to Egypt now, and the unrest may not yet be abating in the region just yet.  These may matter little on the surface to Wall Street from a financial perspective, but there is more to this meets the eye.  If you have read 24/7 Wall St. for long, you have seen us refer to economies beyond emerging markets called frontier markets.  “The World at Night Map” shows how many of those frontier markets are largely in Africa.

The regional frontier market for a broader Africa is the Market Vectors Africa Index ETF (NYSE: AFK).  After looking through its regional exposure, this has just over 20% exposure to Egypt as of September 30, 2010 per the Market Vectors data on its website.  Shares closed at $33.83 on Thursday against a 52-week range of $26.60 to $36.45.

Egypt’s stock market was down roughly 10% on Thursday, and Friday is always a closed day of prayer.  A more specific play on Egypt is the Market Vectors Egypt Index ETF (NYSE: EGPT).  Shares closed on Thursday at $16.79 versus a 52-week range of $15.90 to $22.42.  Be advised that the market cap here is tiny at only about $8.6 million for the ETF and average volume is only about 28,000 shares. Shares were above $18.50 on Tuesday, but have dipped under $16.50 so far on Friday.

Morgan Stanley Frontier Emerging Market Funds, Inc. (NYSE: FFD) has only 1.5% of its fund tied to Tunisia, yet the latest semi-annual report showed no direct Egypt exposure.  Shares closed at $15.08 on Thursday and the 52-week range is $10.52 to $15.72.  The average volume here is only about 19,000 shares and the market cap is close to $100 million.  This one has only come down from about $15.50 this week to $15.02 so far on Friday.

Egypt has roughly 80 million people, while Tunisia’s population is just above 10 million.  The esteemed emerging market money manager Mark Mobius has always held the philosophy that you invest in these emerging markets when there is blood in the streets.  The reasons should be self-explanatory.  In Tunisia, the latest government figure we saw was 78 dead in reports but other reports indicated slightly higher figures.  The figures in Egypt are not yet known as much internet and telecom access has been cut or severely lowered due to outages.

Other protests have taken place om Yemen, Algeria, and Jordan.  Stay tuned.

JON C. OGG