How new high-yield CDs affect Egypt’s stock market

Daily News Egypt
3 Min Read

The competition for attracting investors’ funds among various investment channels is intensifying, with conflicting opinions on the attractiveness of the stock market. This market witnessed significant individual investor interest in 2023, raising questions about its vulnerability to the new certificates of deposit (CDs) offering returns of 27% and 23.5%, introduced by the National Bank of Egypt and Banque Misr last week.

Mahmoud Nagla, the CEO of Money Market and Fixed Income at Al Ahly Financial Investments, believes that the new CDs with a 27% return will affect the appetite of investors in money market and fixed income funds. He expects investors to redirect their funds from these funds to invest in these certificates, especially those who have been eagerly awaiting their launch.

The certificates offered by NBE and Banque Misr with returns of 23.5% or 27% are part of the government’s strategy to withdraw liquidity from the market. Nagla emphasizes that the appeal of the 27% certificates might not be universal, as different investors have diverse preferences. Individuals may choose to redeem their funds from cash funds and invest them in these certificates.

Nagla highlights the importance of matching the investment vehicle with the investor’s profile. Certificates with higher returns may attract individuals with surplus liquidity looking for capital preservation. However, for those with monthly obligations, such as loan instalments, investing in certificates with fixed monthly returns could be more practical.

Mohamed Farouk Masoud, the Managing Director of Global Invest for Securities Trading, asserts that the Egyptian stock market is more attractive than bank certificates offering a 27% interest rate, especially given the accelerating inflation and rising prices. He argues that real returns from bank certificates may not compensate for the impact of inflation.

Masoud notes that stocks have proven their effectiveness as an investment vehicle over the years, and with individuals increasingly turning to stock investments, the market has shown positive performance. He ranks the best investment options as follows: stock market, real estate, gold, and high-yield certificates.

Randa Hamed, the CEO of Okaz for Portfolio Management, anticipates that investors with certificates yielding 25% will shift towards stock investments, particularly after the main index witnessed a 70% increase last year. She emphasizes the difference between investors in stocks and certificate holders, with stocks attracting a more diverse and risk-taking demographic.

In conclusion, the impact of the new certificates on the stock market remains uncertain, and investors’ choices are influenced by various factors, including risk tolerance, financial goals, and market conditions. The evolving landscape requires investors to carefully assess their options based on their individual profiles and market dynamics.

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