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CIVETS Watch: Egypt's 'Days Of Wrath'


A popular uprising dramatizes a hazard for emerging markets investors: If you crave safety, try Switzerland.

Egypt's benchmark stock index on Wednesday closed down 6.1% on Wednesday, its biggest one-day drop since November 2009. The country's major exchange-traded fund (ETF) for international investors, the Market Vectors Egypt Index (EGPT), was at $17.49, down about 7%t on the day and off its 52-week high by 22%. By one estimate, at least $150 million was pulled out of Egyptian bond markets by foreign investors on Wednesday.

Investors do not like uncertainty, and that's a tepid word for what's going on this week in Cairo. Tens of thousands of protesters have swarmed the streets to protest the regime of Hosni Mubarak, Egypt's ruler since 1981. They were apparently emboldened by the popular revolt that toppled the government of Tunisia on January 14, though they've been fed up with Mubarak for a long time.

Their nation's unprecedented economic boom looks good from the top, but the vast majority of Egyptians continue to suffer from entrenched poverty and high unemployment. The only thing they've gotten out of the boom is higher food prices.

The CIVETS nations -- Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa -- are a motley group, but they have this in common: All are running headlong into the 21st century, racing to stake their claim to a place among the world's economic powerhouses. It's not a painless process, for their people or for investors.

As Ahmed Heikal, chairman of the Cairo-based Citadel Capital, wrote in a note to his clients: "If you want to wait until there is no risk, go invest in Switzerland and be thankful for 1.4% on your 10-year government bond."

The CIVETS nations have other strengths and weaknesses in common. All have diverse economies, young and ambitious populations, and a wealth of natural resources. All have reasonably stable governments, but none in the least resembles Switzerland.

Here's a summary of how each is doing lately, and how investors in them are doing based on the ETFs devoted to them.

Colombia is looking at 5% growth this year and for the next couple of years. Its biggest problem achieving that goal, President Juan Manuel Santos said recently, is keeping its currency from strengthening too much. The peso has gained about 60% against the dollar since 2003. For several months, Colombia's central bank has been buying $20 million a day to keep the peso in check, according to The Wall Street Journal. The country's big oil and mining industries have helped keep its economy going, although months of rain have hurt those and other industries -- particularly coffee.

The Global X/InterBolsa FTSE Colombia Index (GXG) was at $42 on Wednesday, down about 13% from its 52-week high.

In Indonesia, the mere fear of worsening inflation, combined with a slow government response to it, is adding pressure to stocks and bonds. It may also be scaring away some of the foreign investors who are funding the country's burgeoning growth. Analysts estimate that money flowing out of the country so far this year has taken $500 million from stocks and $775 million from bonds.

The Market Vectors Indonesia ETF (IDX) was at $80.58, down about 14% from its 52-week high, on Wednesday.

In Vietnam as in Egypt, inflation is the bug in the economic machine. The nation's economy grew at 6.8% in 2010, no mean feat given the world's economic problems. But double-digit inflation makes life much harder for the many Vietnamese who live at a bare subsistence level. The nation's lumbering Communist bureaucracy is widely seen as incapable of dealing with the problem. Or with even more urgent problems, like the collapse of the nation's biggest shipbuilder, Vinashin.

Market Vectors Vietnam
(VNM) was at $28.07 on Wednesday, down about 7% from its 52-week high.

Turkey is suddenly looking fabulous, compared with near-comatose Europe to the West and politically uproarious Middle East to the east. In an op-ed piece this week in Newsweek, Prime Minister Recep Tayyip Erdogan delicately hints that his nation might be forced to shore up economic ties with its Muslim neighbors if Europe continues denying it membership in the European Union. He notes that Turkey is now Europe's fastest-growing sizable economy, and is "bursting with the vigor that the EU so badly needs."

The iShares MSCI Turkey Index (TUR) is at $63.81, down about 20% from its 52-week high.

South Africa now finds itself welcome in two emerging-nations clubs, with membership in the CIVETS nations and a seat at the big-boy BRIC table. It declares that the grouping of fastest-growing developing nations should now be called BRICS for Brazil, Russia, India, China and South Africa. Perhaps more substantially, Standard & Poor's and Fitch Ratings both raised their outlooks on South Africa's foreign currency rating this month, noting the nation's continuing economic recovery and government commitment to cutting debt levels.

iShares MSCI South Africa
(EZA) is currently at $68.07, within pennies of its 52-week high.
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