Middle East Revolutions and the Markets

by Darwin on February 20, 2011

With citizens revolting in country after country around the Middle East, you’d think revolution was the new black.  When Tunisia’s leadership was ousted, it barely made the nightly news.  Egypt eventually became a front-page story given a rather prolonged period of demonstrations, the fact that Americans at least know Egypt for their pyramids and Google was looking for a missing employee over there.  It became rather amusing to watch my twitter feed and see how many experts there were on Egyptian politics after they glanced at a couple news flashes they saw on CNN.  When gas prices break $4 after more regimes fall, Americans will truly become more aware of the world around them.  But until then, opinions will likely to be the result of what Jon Stewart and the cable news pundits tell them.

While I don’t proclaim to be a scholar on Islam, the Muslim Brotherhood, Israel, or Morocco, I am a strong proponent of what my old B-School professor used to say “Listen to what the market is trying to tell you”.  At a basic level, most retail investors should probably steer clear of speculating on the turmoil in the Middle East at all.  But for those that do actually have some insight and expertise in the region, you may be inclined to monitor these situations for market opportunities.  Below is a random mix of sources, trading ideas and tools you can use to monitor the situation, which in many cases, will be more timely than Twitter and CNN broadcasts and trending.

Credit Default Swaps -I used to laugh (cry actually) at the data showing Iraq as a more stable sovereign than the state of Illinois.  I mean, it’s kind of sad actually, that a country that was just invaded and in complete chaos was being viewed as more likely to meet debt obligations than our President’s prior state of service as a Senator.  But that aside, what these credit default swaps measure, is basically sentiment regarding what investors feel the likelihood is that a state, sovereign or municipality will default on their debt during a given period of time.  A great tool to watch these CDS spreads in real time is the Markit CDS Page.  As of Friday, you can’t help but notice Egypt, Bahrain and UAE high on the list of widening spreads.  Who knows?  Keep your eye on this list and perhaps the market will be telling you something the mainstream media isn’t.  And you could exploit that data.

Middle East ETFs – There are several ETFs that focus on the region.  While the Egypt ETF (EGPT) has had some anomalies of late and is probably best avoided, if you see regional issues brewing or improving, you could take advantage of opportunities through any of the following:

  • Oil ETFs USO, OIL and others, US gasoline prices with UGA
  • Various gulf-focused ETFs like the Frontier Countries Portfolio (PMNA), the Middle East Dividend Fund (GULF) and the Market Vectors Gulf States Index Fund (MES).

Middle East Stocks You Can Trade – There are dozens of stocks you can trade that are based in the Middle East through ADRs (American Depository Receipts).  Just like you may be familiar with Baidu.com (BIDU) out of China or TEVA out of Israel, there are dozens of other gulf state companies you can trade in the US or London exchanges.  I found a nifty list of hundreds of ADRs sorted by country at BNY Mellon.  Sometimes, the best investors are the ones who go with the flow during market conditions and just stay long equities, but then pounce on special situations like this.

What Are Your Thoughts on Investing in the Middle East Turmoil?

{ 4 comments… read them below or add one }

101 Centavos February 21, 2011 at 8:10 am

Darwin, the flare-ups in the Middle East are partly about the high cost of commodities, which reinforces my thoughts on my investment plan (however skillfully or ineptly I execute it). About the only things I’m considering out of the Middle East these days is the Israeli cell-phone companies.


JT McGee February 21, 2011 at 12:18 pm

Funnny, I just wrote a post about playing oil for 2011-2012. Granted, I’m focused primarily on Fed policy and the issues that come from the dual mandate, but I’m sure there’s equally as much money to be had on Mideast tensions.

Oil is my favorite commodity going forward, and I think producers are a great way to get exposure to it.


Barb Friedberg February 21, 2011 at 3:33 pm

I am not much of a gamble and usually go with the high probability activities. My take is that the middle east is somewhat unstable now and the investing environment uncertain. I strongly believe in international investing…. through broadly based index funds.


Evan Levine February 28, 2011 at 2:25 pm

I would not ” invest” directly into this turmoil, however I do believe that these uprisings will result in better returns for equities over time.


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