The Risk in Middle East ETFs

With all of the news of protests, uprisings and cut offs of oil supply, one may wonder why invest in Middle East or Gulf region exchange traded funds (ETFs). Despite all of the unsettling news, the ETFs have been performing over the past month.

Protests in the region could bring reform, not just political, but economic reform too. A call for more democracy potentially could lead to opens markets, diversifies the income outside of oil, and building of new infrastructure. Creation of jobs, building of roads, opening markets to benefit both the local economy and the global economy – these are all just some possibilities for the future of these countries.

In the near term, political strife could have the wealthy moving their funds outside of the country into offshore havens. But sovereign wealth funds and governments are pushing oil revenue into the local economies to dampen the unrest, reports Robin Wigglesworth and Lina Saigol for the Financial Times.

It’s not to say that there is not any risk with investing in this area. Volatility can be high and the risk may be greater than what one may want in their portfolio. This region is still in its fragile stages of development. Investors who are still willing to take a gamble on the growth in the region should mind the trendlines. Geopolitical risk plays a huge part in the success of these economies.

• Market Vectors Gulf States ETF (NYSEArca: MES) up 1.8% for the past month; top countries include Kuwait 42%, Qatar 25%, United Arab Emirates 22%; top sectors include Banks 48%, Financial Services 13%, Real Estate 9%
• Financials 44.9%, Other Financials 16.2%Industrials 12%; Real Estate 9.3%; Technology 7.1%; Telecom 5%.
• WisdomTree Middle East Dividend ETF (NYSEArca: GULF) up 3.4% for the past month; top countries include Kuwait 29%, Qatar 24%, United Arab Emirates 20%; top sectors include Telecommunications 48%, Financials 33%, Industrials 12%

Tisha Guerrero contributed to this article.