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Friday, 21 September 2018

Egypt's best investments

Gold, real estate or bank certificates? What are the best investment vehicles for private investors?

Safeya Mounir , Saturday 1 Sep 2018
Gold shop in Khan el-Khalili
An Egyptians couple are reflected in a mirror as they look at jewelry at a gold shop in the Khan el-Khalili market in Cairo, Egypt. (AP)
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With the rising economic pressures and increased inflation, the resources available to many households to invest or save have become extremely limited. Finding the best means to invest such limited extra funds has become a priority for many families wishing to secure additional income.

Defining the best investment depends on the kind of yield sought. Some people aim for quick profits, while others make investments that should give yields in the longer term.

“Those not eager to make quick gains should invest in real assets such as gold and real estate,” advises Radwa Al-Swaify, head of research at Pharos Holding.

Experts believe real-estate prices in Egypt will continue to rise by 10 to 15 per cent as a result of fuel and electricity price hikes, which automatically translate into increases in the prices of cement and steel and in the cost of transporting workers and equipment.

“People looking for short-term, risk-free investments should buy bank certificates that guarantee fixed interest rates,” Al-Swaify added.

Alia Al-Mahdi, a professor of economics at Cairo University, concurred. “People who don’t have adequate experience in the stock market should invest in bank certificates, especially if they do not have the savings to buy gold or real estate,” she said.

The Central Bank of Egypt’s (CBE) Monetary Policy Committee decided in its 16 August meeting to fix interest rates on deposits and lending at 16.75 per cent and 17.75 per cent, respectively.

After the National Bank of Egypt stopped issuing investment certificates with a 17.25 per cent yield, the highest interest rate currently offered by the banks stands at 14 to 15 per cent.

Al-Swaify believes the real-estate sector is entering a period of relative calm. “Price increases in real estate are going to be less in the coming years, even as in the past they sometimes reached 30 per cent annually,” she said.

She cited inflation, stable exchange rates, and high interest rates on bank certificates, more tempting for investors looking for financial security than real estate, as the reasons for the expected calm.

“The secondary real-estate market is fairly slow, with increasing supply and weakening demand. This is the result of fierce competition among the real-estate companies that offer financial facilities to the buyer such as long-term instalments and reduced down payments,” Al-Swaify added.

“Private owners offering their units for sale cannot compete with the financial facilities offered by the real-estate companies,” she said, expecting that every once in a while fully-finished units at alluring prices could nevertheless appear on the secondary market.

“The companies cannot offer low-priced units, but they can extend the period of instalments,” she said.

Al-Swaify also believes that the market will see the disappearance of “flippers”, or those looking for quick profits through buying units and selling them immediately afterwards.

“Investing in gold is profitable for people making short-term investments,” said Omar El-Shenety, managing director of Multiples Investment Group.

“Despite the current decline in its price, gold is expected to make a strong comeback by the beginning of next year.”

Internationally, gold lost 14 per cent of its value in April as a result of the appreciation of the dollar, rendering dollar-priced gold more expensive for buyers dealing in other currencies, according to Reuters.

A World Gold Council report stated that gold had lost three per cent of its value during the first half of August, reaching $1,200 per ounce for the first time since early 2017.

“Gold has proven to be a safe haven for investors. It never loses its worth, even if it is subject to temporary declines,” Al-Mahdi said.

El-Shenety suggested renting fully-finished residential units as a strategy for those looking for medium-term investments. “Investing in the stock market is profitable for short-term investors, especially with the anticipated state-owned IPOs in the coming months,” he added.

The government is planning to put up for sale shares in 20 state-owned companies and three banks, starting with the Eastern Tobacco Company, 20 per cent of which have already been announced for sale before the end of the year.

Egypt’s stock market has been suffering a decline since May, much like many emerging markets, as a result of the dollar appreciation and increasing interest rates.

The fact that the CBE maintained the same interest rates at its past three meetings was against expectations to lower them by three to five per cent throughout this year and made investing in the stock market less appealing.

Nonetheless, Egypt’s stock market performance this year is the best among other emerging markets, including Turkey’s which has fallen by 36 per cent, and Argentina’s which has fallen by 37 per cent, since the beginning of the year.

*A version of this article appears in print in the 30 August 2018 edition of Al-Ahram Weekly under the headline: Best investments 

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