As Egypt Bourse Announces Trading Halt Through End Of Week, What Happens To EGPT ETF Holders And The 15% Premium To FV?
After Van Eck Global briefly suspended the EGPT ETF for trading, the broad synthetic market index resumed trading and closed about 8% higher on the day. That Kool Aided investors saw absolutely no problem with the fact that the ETF would not have access to creation units until the Egyptian market reopened. Which begs the question: after it was earlier announced by Arabiya that the Egypt bourses are likely to continue their closure until the end of the week, just how many more investors will risk with ramping up the ETF ever higher, even as it was trading at a 15% premium to FV yesterday. Lastly, if as some expect the Egyptian stock market does plunge once it finally reopens, those who loaded up on this latest mini bandwagon are about to be reaquainted with gravity. Alas, the Egypt stock market is not part of Bernanke's purview for wealth creation.
The Market Vectors Egypt Index ETF (EGPT) ran into operational difficulties and was forced to shut down Monday morning. When it opened later, investors rushed back in, sending shares of EGPT up 7.9% on the day.
But large blocks of new shares, or so-called “creation units,” won’t be made available again until the stock market in Egypt reopens. The fund’s sponsor, Van Eck Global, is allowing redemptions. As a result, investors can still buy new shares as long as traders are willing to sell.
A Morningstar analyst noted in Barron’s original report that EGPT is a thinly traded ETF. But she termed the possibility that the ETF would start trading like a closed-end fund — which typically doesn’t issue new shares and trades at premiums or discounts — as unlikely.
Late Monday night, the Van Eck Global site listed EGPT trading at a 14.38% premium.
On the other hand, revolutions all around the world are firmly priced in at this point. Who would be stupid enough to actually short stuff when the only incremental risk factor is a total protonic reversal.
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