Share prices are at their lowest point in four years. This may be just the right time to invest in the stock market. If you have some money to spare, that is. Niveen Wahish reports Egypt's economic slowdown has brought share prices down to a point where analysts believe that they just can't get any lower. Demonstrating the extent of inactivity at the stock exchange, Hassan Samir, head of sales and trading at Prime Securities, said that the Prime Asset Management Index, stood at 10,000 points in January 1998. By June of this year, it fell by almost half, to 5276 points. Some shares have lost over 70 per cent of their value. The Egyptian mobile services company, MobiNil, which once traded at over LE180 is now trading in the region at LE30. Shares which the small investor could, hitherto, only buy a handful of, are now more affordable. But whether the price factor should be capitalised on is a tricky question. Noha Khalil, online trading manager with ArabFinance.com, thinks the fact that prices are low is certainly attractive, but "one should not buy unless they are in for the long term." She warned investors who wish to capitalise on the cheap prices not to expect a return overnight. "In a market like ours, invest your money and think long-term" she added. Stock prices will rise as the economy improves, she explained. As most analysts put it, "The stock market is the mirror of the economy." For this reason, Khalil advises that investors have to evaluate the reasons behind the depressed market first, and only then decide what to invest in. An investor should thoroughly research his company as well as the prevailing economic conditions before putting money into the market, she advised. But this is something that Egyptian investors with small savings are not used to doing. In fact, improving investor awareness is seen as crucial to the success of any investment, large or small. One broker who preferred to remain anonymous was against the idea of dubbing investors with small savings as "small investors". "It does not matter if an investor has LE10 million in the bourse or LE10,000, the loss or gain is a percentage of what he invested in the market." Although he acknowledged that share prices in Egypt are below their fair value, he believed that few would be able to take the opportunity to buy cheap. "The economic slowdown has made things tight for everyone, nobody has money to spare, and if they do they'd prefer to make a secure investment," he said. "Bad goods would sell if the market is good, but not the other way around," he added. He also pointed out that investors only approach the stock market if they feel they will get a higher return than depositing their money in a bank. Since this is not presently the case, demand for stocks is very low. But in good times or bad, he advised that no investor, big or small should invest more than 20 per cent of his net worth in the stock market. However, the stock market is still viewed by the general public as a "no go" area. Few would contemplate investing in shares. Those who do, act on rumors, rather than making a sound decision based on studying the companies in question. "People have to understand when to buy and sell, not just based on the price factor, but on the actual value of the share," said Hassan Samir. In order to overcome any lack of knowledge, small investors could invest in mutual funds. The revenue from the investment certificate of the fund should be as good or better than that received on deposits placed with a bank, Ennayat El-Naggar, Senior Chief Manager at the Capital Markets department of Misr Exterior Bank, pointed out. But that has not been the case. "The performance of mutual funds has been lame," said El-Naggar. Indeed, the performance of 21 mutual funds has not met expectations. Not only has their performance been affected by the overall performance of the economy, but some experts believe that they have failed because of poor management. El-Naggar believes that mutual funds have failed because their managers simply purchased the 10 most traded shares. "There must be dynamic trading. Managers should not just buy the most active shares and sleep on them," El-Naggar said. She stressed that in order to overcome this, new criteria must be set to guide the performance of mutual funds. Another means of catering to small investors was introduced by ArabFinance when it launched Egyptian stock trading via the Internet. Since there is no minimum balance required, this provides an alternative to small investors, especially at times when brokerage companies may be occupied with their high net-worth clients. The site attempts to educate the investor by providing its visitors with research, reports and analysis as well as a simulation of the stock market. This provides investors with the background to venture into the stock market. The brand name www.ArabFinance.com is owned by EFG- Hermes electronic services, a fully-owned subsidiary of Link.net holdings. As for a rebound; "no one can tell," said Noha Khalil. In the meantime, the Capital Market Authority (CMA) is trying to improve conditions within the bourse. Recently, it announced the lifting of a five per cent ceiling on the movement of share prices for the 12 most actively traded companies. Additionally, the settlement period for these 12 companies has been reduced to two days following the transaction date, instead of three, making the settlement cycle faster. Attempts to improve transparency are also crucial to the revival of the market. The Egyptian Stock Exchange is in the process of placing new regulations for share listing and delisting. This might help investors regain trust in the companies on offer and enable them to monitor their performance better, said El-Naggar. She also stressed that individual investors need to attend the general assemblies of companies they have invested in, and make sure that, as minority shareholders, they take part in the decision making process. Today, minority shareholders, even if they hold only five per cent of the company, have the power to stop general assembly decisions, if they feel there is a lack of transparency. Most importantly, investors must regain trust in the system, and they must feel confident that there is a clear vision guiding the management of this economy.
