Cairo Calling? Egypt ETF Continues to Languish

In the essence of full disclosure, we'll fess up to the fact that earlier this year we were bullish on the Market Vectors Egypt ETF

, one of just a small number of ETFs offering country-specific exposure to a frontier market. That was before a political revolution that led to the toppling of Hosni Mubarak's regime. Obviously, political tensions can weigh on any country-specific ETF, developed market or otherwise, but frontier market ETFs are particularly sensitive to negative political scenarios. So it was no surprise to EGPT tumble in the days leading up to an immediately following the collapse of the Mubarak regime. Now the Market Vectors Egypt ETF is down over 42% year-to-date and there is little reason to believe the ETF is a value play here. More like value trap. Any optimism for legitimate regime change in the North African has gone by the wayside. Last weekend, Egyptian troops slaughtered peaceful protesters. One fifth of Egypt's 80 million people live in poverty, according to official figures, and in the short term, the overthrow of Mubarak in February has made life harder for many of them, according to Reuters. EGPT's February low was in the neighborhood of $16. Today, the ETF resides below $12. Another reason to avoid EGPT: Slowing GDP growth. If the 6% growth seen in recent years could have been maintained, EGPT would probably be a “buy.” Instead, economists surveyed by Reuters are forecasting 1.3% GDP growth through June 2012. Standard & Poor's has lowered Egypt's credit rating to BB- on the nation's growing budget deficit and sliding foreign reserves, according to Bloomberg. Add to that credit default swaps on Egyptian debt are soaring and there is not much in the way of a compelling case to be long EGPT. In fact, it might be wise to be short below $10.75.