The recent conflict in Iraq between insurgents and military powers has yet to result in wide-spread panic for the majority of financial markets.
Despite mild volatility last week, the majority of domestic indices are still within a small margin of their all-time highs.
However, the same cant be said for stocks in the Middle East region that are more closely tied to this geopolitical event.
In fact, several ETFs that track gulf states are seeing heavy selling pressure on Monday that may continue to escalate if calmer heads dont soon prevail.
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The MarketVectors Gulf States ETF (NYSE:MES) is down more than 10 percent from its recent high and volume on this ETF has picked up considerably. MES tracks 57 stocks of countries such as the United Arab Emirates, Qatar and Kuwait.
While this ETF initially started the year on sound footing, the recent violence in Iraq and uncertainty of neighboring country spillover has resulted in distress.
The countries within MES are known as frontier markets that tend to be harder for foreign capital to access.
The lack of political, legal and military stability are just a few of the reasons why these countries often experience periods of heightened volatility.
Another ETF with similar exposure to MES is the WisdomTree Middle East Dividend Fund (NASDAQ:GULF).
This ETF focuses specifically on dividend paying stocks of gulf nations and has the same three countries as its top weightings.
GULF also experienced a sharp decline on Monday as the 70 underlying stocks that make up its portfolio were pushed lower.
However, one advantage of this ETF over its competitors is the yield component, which is currently listed at 6.32 percent. Many conservative investors consider dividend stocks to be a safer play in historically volatile regions.
Even the broader iShares MSCI Frontier 100 ETF (NYSE:FM) has been unable to escape glut of sellers that have stepped in.
While more diversified in a variety of pre-emerging markets such as Nigeria and Argentina, FM still has significant exposure to the gulf region that is weighing on its price. This ETF is currently more than five percent off its recent high.
While a great deal of uncertainty is still in play, ultimately a peaceful resolution to this conflict could provide an opportunity to access these frontier markets well off their highs.
The declines in Russia earlier in the year are another example of international strife leading to strengthening prices.
However, at this point there's no telling where the bottom will be.
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