How to Trade Possible Rebound in Egypt stock Market?
Published on January 31, 2011
Published on January 31, 2011
Egypt is going though probably the most challenging period of its recent history. The developments in the country are being watched closely by almost everyone. EGX-30 (Egyptian stock market barometer) is down over 20% during the last few weeks (close on Jan 27). The CDSwaps are rising. Moody’s has just downgraded Egypt’s bond rating from Ba1 to Ba2, with the outlook changed from stable to negative. According to Reuters, In the two working days after the protests erupted last Tuesday, which was a bank holiday, Egyptians and foreign investors transferred hundreds of millions of dollars out of Egypt, currency traders estimated. The more you read, more you can find.
So why am I am focusing on probably the most volatile country etf right now? I am optimist. My Basic premise is that no doubt there are issues that need to be addressed but from a pure market perspective, at this juncture Egypt market is oversold in short term and may see a quick rebound even on a slight indication of any positive development.
Market Vectors Egypt Index ETF (the Fund) seeks to replicate the price and yield performance of the Market Vectors Egypt Index (the Index). The Fund would normally invest at least 80% of its total assets in securities, which comprise the Fund’s index. The Index provides exposure to publicly traded companies that are domiciled and primarily listed on an exchange in Egypt or that generate at least 50% of their revenues in Egypt. In certain cases, companies with less than 50% of their revenues derived from Egypt may be eligible for inclusion in the Egypt Index. The Index is the property of 4asset-management GmbH, which has contracted with the Structured Solutions AG to maintain and calculate the Index. The distributor of the Fund is Van Eck Securities Corporation. The investment adviser of the Fund is Van Eck Associates Corporation.
This is a scenario where I would like to use the term “Heads I win, Tails I don’t lose much” as made popular by Mohnish Pabrai . As of this writing, EGPT (Market Vectors Egypt Index ETF) that represents Egypt stocks market is down almost 17% within last few weeks. (Just coincidence, that since I started writing this post, it has risen almost 7% today). I shall have my stop around $15.5, target exit will be a quick 15% (If it pullsback then a good entry is around $16-$16.5). There are no options on this etf and hence one has to trade using this etf as an underlying.
The WLL free trade that I shared a few days ago is already up +20%, collecting almost 65% of credit in less than a weeks’ time. Congratulations to those who played. You may want to close it and book profits.
Disclaimer– I am by no means an expert on geopolitical issues. As of this writing I hold positions in EGPT but I may close anytime without any notice. Trading in EGPT can be very volatile, pls do your due diligence before investing any single $$ in this trade.