Analyst Blogs
Is EGPT Going To Pop 60%, 20% Or Not At All?
February 25, 2011
How far will EGPT fall when the market opens? Or how much is the Egypt ETF suggesting the Egyptian market will rally? The answer may surprise you.
After yesterday’s webinar on emerging markets, I got a note from someone who’d been poking at the premium/discount issue with everyone’s favorite broken ETF, the Market Vectors Egypt Index ETF (NYSEArca: EGPT). Closed for creations since Jan. 29, EGPT is now trading at a notional 22 percent premium. That premium is notional because the gap will be closed when one of two things happens after the market reopens in Cairo: Either the price of EGPT will plummet back toward the NAV where it stood in late January, or the Cairo Stock Exchange will open and the prices of the underlying stocks will soar.
Here’s a quick chart to show how EGPT and its underlying holdings have diverged.
But how far does the gap have to be? Answer: Not 22 percent.
Here were the holdings going into yesterday in the fund, with yesterday’s closing prices. The securities in bold are actually still trading, on London and Canadian exchanges.
| Holding |
Ticker |
Shares |
Price |
Market Value |
% of net assets |
|
Net Other Assets / Cash |
|
0 |
$1.00 |
$ 9,536,874.14 |
41.14% |
|
Orascom Construction Industries |
ORSD LI |
52,884 |
32.74 |
$ 1,731,422.16 |
7.47% |
|
Orascom Telecom Holding SAE |
OTLD LI |
557,227 |
3.245 |
$ 1,808,201.62 |
7.80% |
|
TRANSGLOBE ENERGY CORP |
TGL CN |
77,331 |
13.5 |
$ 1,062,022.89 |
4.58% |
|
Commercial International Bank Egypt SAE |
COMI EY |
160,224 |
36.49 |
$ 993,386.08 |
4.29% |
|
Centamin Egypt Ltd |
CEY LN |
477,174 |
1.253 |
$ 964,769.86 |
4.16% |
|
YeTalaat Moustafa Group |
TMGH EY |
685,124 |
6.53 |
$ 760,149.47 |
3.28% |
|
Telecom Egypt |
ETEL EY |
238,577 |
16.03 |
$ 649,798.54 |
2.80% |
|
Egyptian Financial Group-Hermes Holding |
HRHO EY |
151,426 |
26.42 |
$ 679,751.07 |
2.93% |
|
Juhayna Food Industries |
JUFO EY |
631,632 |
5.47 |
$ 587,040.53 |
2.53% |
|
ElSwedy Cables Holding Co |
SWDY EY |
69,322 |
45.74 |
$ 538,745.78 |
2.32% |
|
Egyptian Kuwaiti Holding Co |
EKHO EY |
470,748 |
1.26 |
$ 100,780.30 |
0.43% |
|
Egyptian Co for Mobile Services |
EMOB EY |
22,589 |
133.21 |
$ 511,270.19 |
2.21% |
|
Ezz Steel |
ESRS EY |
202,446 |
15.93 |
$ 547,950.86 |
2.36% |
|
Citadel Capital Corp/Cairo |
CCAP EY |
378,528 |
7.14 |
$ 459,211.61 |
1.98% |
|
Palm Hills Developments SAE |
PHDC EY |
456,343 |
4.87 |
$ 377,604.35 |
1.63% |
|
Six of October Development & Investment |
OCDI EY |
27,065 |
80.63 |
$ 370,784.29 |
1.60% |
|
Maridive & Oil Services SAE |
MOIL EY |
118,444 |
3.06 |
$ 61,581.62 |
0.27% |
|
Sidi Kerir Petrochemicals Co |
SKPC EY |
143,652 |
12.82 |
$ 312,907.76 |
1.35% |
|
Medinet Nasr Housing |
MNHD EY |
57,211 |
23.81 |
$ 231,449.14 |
1.00% |
|
Egyptian Financial & Industrial Co |
EFIC EY |
55,164 |
15.62 |
$ 146,404.16 |
0.63% |
|
Egyptian for Tourism Resorts |
EGTS EY |
561,548 |
1.52 |
$ 145,026.41 |
0.63% |
|
Arab Cotton Ginning |
ACGC EY |
229,041 |
3.08 |
$ 119,861.74 |
0.52% |
|
Heliopolis Housing |
HELI EY |
37,361 |
18.34 |
$ 116,421.84 |
0.50% |
|
Naeem Holding |
NAHO EY |
265,469 |
0.4 |
$ 18,042.24 |
0.08% |
|
Pioneers Holding |
PIOH EY |
236,311 |
2.46 |
$ 98,772.42 |
0.43% |
|
South Valley Cement |
SVCE EY |
153,197 |
3.79 |
$ 98,652.05 |
0.43% |
|
Nile Cotton Ginning |
NCGC EY |
47,455 |
11.25 |
$ 90,709.16 |
0.39% |
|
Cairo Housing & Development Co SAE |
ELKA EY |
74,624 |
4.7 |
$ 59,592.69 |
0.26% |
We reported previously on that big cash number, a result of taking in a big creation order when the fund couldn’t go buy enough underlying securities. But how that skews the premium/discount number is nonintuitive. Effectively, 41 percent of the premium in EGPT is linked to the cash, an asset that should never have a premium of any kind since it’s completely fungible.
So here’s how to really think about the math:
EGPT has 1.550 million shares outstanding at a price of $18.34. That puts the market value of the ETF at $28,427,000. Based on the above table, we know the actual value of the holdings is quite a bit less than that:
| Cash/Trading Holdings: | $15,136,019 |
| Egyptian Holdings (stale): | $8,076,580 |
| NAV: | $23,212,600 |
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