No need to start sewing your savings into the mattress yet, just watch where you are putting your money, experts tell Niveen Wahish Heba Mohamed's life almost came to a complete standstill as she watched the bulk of her savings dwindle to almost a quarter of their original size during this past month. Mohamed had some LE85,000 invested in the stock market. Today the value of her investments is in the range of LE20,000. Before the world came crashing down for her, she was hoping to pull out of the market just in time to cover an instalment she was due to pay for her apartment. But now she will no longer be able to do that. She will have to hang in the stock market until prices improve. But Mohamed no longer trusts the stock market with her savings, even with what little is left of them. The same goes for many others who simply do not know what to do with the earnings they have put away. One thing is sure: they have all learnt to be cautious. And rightly so, says Doha Abdelhamid, professor of finance at the American University in Cairo. She discouraged anyone living on the income generated from their life savings, such as pensioners, to venture into the stock market unless they are real gamblers, as it were. "Although the stock markets will pick up in a year's time, they are currently very volatile," Abdelhamid told Al-Ahram Weekly. As for the medium or large-scale investors, who have a higher tolerance to risk and can cushion some short-term losses, she believes the stock market presents some good opportunities. However, she warned investors not to be intimidated if prices drop further. "They are bound to pick up," she said. Abdelhamid believes that such investors can make use of research to select the right companies to add to their portfolios or cut their losses from non-viable stocks. XChange Business Solutions Managing Director Walid Gamaleddin agrees. He thinks the Egyptian stock market currently presents "a massive opportunity" for short- and long- term investors as it is at "an all time low". However, he prefers that investors hang on to their stock for a minimum of one year to ride out the effect of international market fluctuations. He does not believe Egyptian companies will be affected dramatically by international conditions. In fact, he thinks that these international conditions provide an opportunity for these companies to expand and maybe acquire institutions that have been hit, leading to consolidation and stronger entities that will be properly positioned within their sectors locally and regionally. Banks, it seems, are a safer bet for smaller investors. Abdelhamid says fixed-income financial instruments such as bank deposits or bonds are the safest place for the small investor. Since the Central Bank of Egypt started raising the overnight lending rate between banks, the interest rate on deposits has followed suit. This resulted in very lucrative rates on long-term deposits reaching as high as 12 per cent on three-year deposits. Such high levels of interest, Gamaleddin thinks, are attractive only for the inexperienced. As for the more skilled, they should branch out their investments leaving only a portion dedicated to deposits. He believes that by locking their investments into long-term deposits often extending to three years, investors may miss out on many opportunities. He expects "the crisis to clear up earlier than this, which means that they will miss out on better opportunities." One opportunity for those who can afford is real estate, says Abdelhamid. "It offers higher returns," she says, "though the growth rate of these returns will not be as high as in the past couple of years." And for the large Arab and Egyptian investors she thinks real estate in the US is a bargain. For the small-scale investor she recommended the purchase of gold as its price is declining worldwide. Gamaleddin agrees that gold is currently a safe haven. However, he forecasts that with the projected win of the Democratic Party in the upcoming US election, the dollar will strengthen due to the conviction that the Democratic Party is capable of dealing with the current crisis. "Once the dollar increases in value against other currencies, the value of gold will drop dramatically," he said. With this in mind, he advises investors to hold onto their greenback for now. It is expected to increase in value against all major currencies, especially with further upcoming cuts in interest rates on the US dollar by the Federal Reserve. Nonetheless, he does not believe a stronger dollar will induce Egyptians to relinquish their Egyptian pound deposits yet. Even though a decrease in interest rates on Egyptian deposits is imminent, "it is not enough to tempt investors to convert their holding of Egyptian pounds to US dollars," Gamaleddin told the Weekly. Still, regardless of which way the US dollar will head in, Abdelhamid advises small investors to stay away from the foreign exchange game. She also believes that venturing to start up a business in these uncertain times is precarious for both the small- and large-scale investors. "Expectations of profit generation and loan repayment are dubious," she said. However, she pointed out one exception, that of projects with "high value- added and inelastic demand such as agriculture, wheat, vegetables and fruit". Otherwise, Abdelhamid says, "don't take a risk in such a risky environment."
