Egyptian Stock Market Bodes Poorly for Middle East

by: ChartProphet

The Egyptian stock market is worse off today even after the successful 2011 Egyptian Revolution of January-February.

As protesters were able to effectively oust President Hosni Mubarak from office following their strong campaign against police brutality, lack of free elections and freedom of speech, corruption, state of emergency laws, high unemployment, inflation and other economic issues – the market [as represented by the Egypt ETF (NYSEARCA:EGPT)] bounced back after sharply falling in January over the upheaval in the country.

Yet while the market bounced back a considerable amount following the successful overthrow of Mubarak, the market has actually dropped to new lows since then. In other words, even though it seemed as if the majority of the problems in Egypt may have been solved, the market may be telling us that they are far from over. A poor economy stands as a very big hurdle for Egypt's future; and Egypt's revolution and economic future may highly affect surrounding countries in the Middle East region.

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The Egyptian Revolution sparked protests in other Arab countries as well – Yemen, Jordan, Bahrain, Lybia and Syria. Protests may prove to be socially beneficial in the longer-term, but can severely disrupt the economy in the short to medium term.

With Egypt's apparent market and economic weakness as of late – and especially since the market is actually lower today than it was at the height of the revolution – it appears that the Middle East and surrounding areas may see some increased weakness and potential for economic and social upheaval. The weakness in the area bodes poorly for those countries and, potentially, Middle-East-related ETFs such as the Egypt ETF, Emerging Middle East and Africa ETF (NYSEARCA:GAF), Middle East Dividend Fund (NASDAQ:GULF), Gulf States Index ETF (NYSEARCA:MES), Frontier Countries ETF (NASDAQ:PMNA) and Middle East Mutual Funds (TRAMX) (TRIAX). Unless the turmoil and protesting eases up and the markets show some increasing strength, it is recommended to either stay away from these investments or to pick individual names and monitor them closely.

Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.