Play a rebound in oil with Frontier Markets ETFs.
From a contrarian point of view, an investment in oil is starting to look very attractive. From its all time high of almost $150/barrel, oil has now declined to under $70 per barrel. Bullish stock analysts forecasts of $200 per barrel oil fueled the race to issue exchange traded funds (ETFs) that were linked to oil producing countries. For example, during July 2008 four new ETFs were launched that were heavily linked to Persian Gulf States, so called frontier market ETFs.
The WisdomTree Middle East Dividend Fund (GULF), the Africa ETF (AFK), the PowerShares Frontiers Portfolio (PMNA) and the Gulf States ETF (MES) have all lost between 30% and 40% of their value since July. They are starting to look very appealing as investments.
All these frontier markets ETFs have higher country allocations to the oil producing countries of United Arab Emirates, Kuwait, and Qatar, Saudi Arabia and Oman. These countries all make up the Gulf Cooperation Council, and these frontier countries all resulted in pronounced losses since July.
Lower oil prices are is not all bad news for the Gulf Cooperation Council (GCC) though. Less expensive oil, along with a slowdown in international and local financing, could do what the Persian Gulf regionís central bankers have so far failed to, which is control the regionís double digit inflation. These GCC frontier countries will also continue to book budget surpluses as long as the price of oil does not drop below $50 / barrel. So when oil rebounds from its current levels, which it will, look for these countries and the funds that invest in them to post very high returns.