For a rainy day
seeks expert advice on how to manage one's savings in times of uncertainty
Said Fathi, 40, has just inherited a nice lump sum of money. He does not know what to do with it. He knows that if he does not invest it, it will all be spent to the last penny. Yet the current environment of instability makes Fathi even less at ease about investing his newfound fortune. Meanwhile, Zeinab Abdel-Fattah, 60, has just received her end of service compensation. She knows what she wants to do with it. She decided to buy three-year certificates of deposit at an interest rate of around 11 per cent. "At first I wanted to open a small shop selling women's paraphernalia, but I decided against it because peoples' spending power has lately been affected by unemployment."
The advantage of the certificates of deposit, says banking expert Pacinthe Fahmy, is the regular income. Hani Tawfik, executive president of International Investors, adds that bank deposits are ideal for individuals who do not have the expertise to invest. But Tawfik prefers that individuals put their money "in foreign currency until the pound is fully devalued."
The Egyptian pound lost around five per cent of its value since January 2011, edging above LE6 to the dollar. Although the Central Bank of Egypt has firmly supported the value of the pound in the past year and a half since the revolution, experts believe it cannot go on doing this forever, particularly with an economy that is not yet performing well and with depleting hard currency reserves. Although recently the reserves have seen some slight increase, at around $15.5 billion, they still stand at less than half their amount in January 2011.
There are other venues where one can invest. Tawfik says, "real estate in the form of property or stocks are considered as safe havens in times like this." However, he stresses that the location of the unit is important. Fahmy agrees but says that whoever invests in real estate must not be in immediate need of liquidity. "Time has proven that in Egypt the value of land or housing units never drops," she said, though real estate is a long-term investment.
Another safe haven for investors is gold. Tawfik describes it as "the safest place". Fahmy too believes it's the best investment: "its value has constantly been increasing." She advises individuals to buy gold coins rather than jewellery because the latter carries an additional cost of workmanship, which means it loses some of its value upon resale.
Fahmy says that some studies point out that gold may once again become a currency. "Paper currencies are no longer of any value, since the gold cover for currencies was abandoned."
According to the website of American Bullion Inc, a company that invests in precious metals, so far, in the first half of 2012, gold is trading around $1,600 an ounce. Just one year ago, gold was trading around approximately $1,300 an ounce. Five years ago it was $600 an ounce. The site notes: "highly respected analysts are forecasting that gold will reach $2,000/ounce or higher during 2012. Their reasons are twofold. First, new mines will not contribute much to the supply, as it generally takes 5-7 years to reach a high rate of production. Second, with the world in financial disarray, many financial analysts feel it may take several years to achieve full recovery."
Then there is the stock market. Tawfik says that only people who are properly advised can put a maximum of 20 per cent of their savings in the stock market in specific value stocks. Fahmy agrees. She points out that the stock market has some good opportunities and the companies and banks whose shares are being traded are functioning and strong. "Once the political scene stabilises, their share prices will improve as well," she said. She stressed that investors in the stock market should not be looking for immediate liquidity. "Whoever buys into the market now will have to wait at least for six months until things settle down after the elections."
Fahmy does not believe that investors need to run away with their money. "Investments in Egypt are promising. We just need to cross over this period."
On a similar note, Mohsen Adel, deputy head of the EG-Finance Association says, "Investors may be worried about the short and medium term, but they are optimistic about the future." He said investment in gold and hard currencies like the dollar are mainly to preserve the value of savings and are usually a short-term investment.
Adel too sees opportunities in the stock market, although he forecasts that fluctuation will be the dominant feature, because of the political scene. That being the case, Adel advises those interested in the stock market to not rush into any investment but to carefully choose investment opportunities. He also advises investors to avoid taking out loans to make investments, and to carefully scrutinise the financial results of companies before taking decisions.
But whatever individuals do, Tawfik says, "spending the money is the last thing you want to do. There are a lot of rainy days to come and the best thing to do is to 'store' it."