ETFs covering Middle East countries, including Israel and Saudi Arabia, climbed on hopes that U.S. military strikes on Iranian nuclear facilities may create a more peaceful region and boost the nations’ economies.
Funds that also hold Qatar and United Arab Emirates equities moved higher after U.S. bombers hit Iran’s nuclear facilities early Sunday morning. While the mission’s results are being assessed, the raids appear to have set back Iran’s nuclear program, while questions remain on whether or not the country retains access to its enriched uranium and if it can rapidly bring centrifuges back online.
The performance of exchange-traded funds that hold shares of Middle East countries has been mixed, with the $660.5 million iShares MSCI Saudi Arabia ETF (KSA) dropping 9% so far this year and the $273.6 million iShares MSCI Israel ETF (EIS) adding 14%. Nations in the oil-rich region are attempting to transition into financial and real estate hubs while still fighting religious insurgencies, corruption and outright war between Israel and Iranian proxy militias Hamas and Hezbollah.
The U.S. military action, which came after Iran was censured by a U.N. nuclear agency for failing to comply with non-proliferation obligations, may have improved the region’s economic outlook by removing the specter of a nuclear-armed Iran.
“It does seem like the temperature of tensions can be turned down,” Brian Jacobsen, chief economist at Brookfield, Wisconsin-based Annex Wealth Management, said in an email. “That might not mean peace, but it should mean a resumption of growth.”
Middle East ETFs—Source: FactSet data
KSA rose 0.7% Monday afternoon. The fund, with net inflows of $108.5 million this year through June 20, is mostly allocated to financial firms. Its largest holding is Al Rajhi Bank and the world’s largest oil exporter, Saudi Aramco, is its No. 2 holding. EIS, mostly holding financial services, pharmaceuticals and tech companies, added 0.7%.
The $129.3 million iShares MSCI UAE ETF (UAE) added 1.1% Monday afternoon. That fund, 8.4% higher this year, is more than half allocated to financial services, and its top holding is Emaar Properties. The $78.1 million iShares MSCI Qatar ETF (QAT) moved 0.7% higher Monday afternoon. That fund is mostly invested in stocks of banking companies, with Qatar National Bank being its top holding.
“Often when a military event happens, the market starts to look through the event instead of at the event,” Jacobsen said. “It’s about asking, ‘What’s on the other side?’”