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As Egypt Bourse Announces Trading Halt Through End Of Week, What Happens To EGPT ETF Holders And The 15% Premium To FV?

Tyler Durden's picture




 

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.

From Barrons:

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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Tue, 02/01/2011 - 08:43 | 923187 firstdivision
firstdivision's picture

Jordan is trying to beat the protesters.

Tue, 02/01/2011 - 08:46 | 923191 FOC 1183
FOC 1183's picture

 

PM just resigned.  In other news, Frosty Sack announces today's POMO to include $6 to $8 Billion EGPT; Close Time: 11:00AM

 

Tue, 02/01/2011 - 08:52 | 923199 Xibalba
Xibalba's picture

Ben's machine can paper over any problem long enough to convince anyone that it's not really a problem. 

Tue, 02/01/2011 - 08:55 | 923206 RemiG2010
RemiG2010's picture

Sure! He even can print food and cheap oil not only for Egypt but for whole Middle East!

Tue, 02/01/2011 - 08:54 | 923201 Tic tock
Tic tock's picture

..priced in..!? How quaint. Asset prices correlate to the traders' perception of Central Banks to create money.

Tue, 02/01/2011 - 08:55 | 923205 LeBalance
LeBalance's picture

"Alas, the Egypt stock market is not part of Bernanke's purview for wealth creation."

How is this thought train supported by the tens of billions in aid to Egypt?

Tue, 02/01/2011 - 09:44 | 923359 williambanzai7
williambanzai7's picture

Tue, 02/01/2011 - 10:59 | 923597 omi
omi's picture

To track the price, you don't really need the underlying assets (stocks that make up the index,) you really need something that represents the same change in value as the index. So a better way to track an index is to find TRORS counter parties. This way, you're not putting on constant pressure on the target market. It also makes sense to have bull/bear ETF pairs, as they are essentially swap counter parties for each other (at inception ,say for the same amount,) and as more units need to be created, additional swap counter parties are found for the difference (which generally is smaller than the initial # shares offered)

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