Exchange-traded funds (ETFs) and other investments with ties to the Middle East stumbled on Friday when investors fled to safety as Egypt erupted into violent anti-government protests.
Egypt's armed forces tried to put down mass protests, injuring hundreds. The battles were the biggest and bloodiest during the 30-year rule of President Hosni Mubarak.
The street battles in Egypt followed weeks of protest in Tunisia that brought down that country's president. For many U.S. investments it spurred a flight to safety, pushing investors to the dollar and safe-haven bonds.
"The perception is that risk is elevated; who knows how this ultimately will play out. This is something that began in Tunisia and has now spread to Egypt; there are other countries in a very similar position," said Paul Herber, portfolio manager at Forward Frontier in San Francisco.
According to Cambridge, Massachusetts-based EPFR Global, selling of Middle East equities totaled $16.2 million for the week ended Jan. 26, the highest weekly level since late September for the funds it tracks.
Trading surged on the Van Eck Market Vectors Egypt Index ETF, one of the main instruments available for U.S. investors to get access to the Egyptian market.
The index slumped 5.2 percent on volume of more than 1 million shares traded. Average daily volume over the last 50 days is just 17,500 shares.
Dramatic news events such as riots or elections can often spike volumes on country-focused ETFs, said Adam Phillips, managing director of Van Eck.
Matthew Hougan, senior editor of IndexUniverse.com, which follows the ETF industry, said he could not recall another case where the value of a country-specific ETF had swung as much by political events in that nation.
"It points to the risks that a lot of investors have forgotten about in the emerging-market space. It's a wake-up call in that sense," he said.
ISRAELI INVESTMENTS HIT TOO
Israeli ADRs also slid. Investors exited one of the most liquid markets in the region because of the security threat posed by deepening instability to an important regional ally.
The BNY Mellon index of leading Israeli ADRs slid 1.75 percent, and the Market Vectors Africa ETF tumbled 4.6 percent. Egyptian companies made up about 21 percent of the Africa index as of Sept 30.
Israel-based Teva Pharmaceutical Industries Ltd. lost 1.8 percent to $54.82, and software company NICE Systems Ltd. shed 4.2 percent to $33.55.
"The crisis in Egypt, as well as the significance of a government shutting down the Internet for the entire country, is causing major nervousness in market participants that have been long equities in front of the weekend," said Linda Raschke, a partner with Chicago-based brokerage FuturePath Trading.
Web users in Egypt reported major disruptions to domestic networks on Friday, with many unable to access the Internet and mobile text messaging services in the capital Cairo.
"There is a flight to dollars as well as a flight out of equities. The major benefiting market to the upside is crude oil, capitalizing on the implications for regional instability," Raschke added.
Information technology firm Formula Systems fell 2.6 percent to $19.37, and mobile telecom company Partner Communications Co. Ltd. dipped 1.1 percent to $20.34.
Panic on the streets of Cairo stretched to Wall Street, where U.S. stocks slipped as investors took money off the table ahead of what could be a tumultuous weekend. The S&P 500 index fell by about 1.5 percent.
"We go into the weekend with the highest cash reserve since the 2008, post-Lehman-AIG period," said David Kotok, chairman of Cumberland Advisors in Sarasota, Florida.
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