100 LE to Save the Egyptian Economy

*Disclaimer – Update: The views reflected below tackle the notion of investing 100 LE in the secondary stock market, I exempt from that view purchasing T-bills in the primary market or any primary market purchases for that matter.

I hate to make a tired point. I had laid this investing in the stock market issue to rest, but having the prime minister and the minister of finance endorse this absurd idea on TV is just too much for my poor nerves.

I, the nobody that I am, stand firm by the belief that it is a bad idea, or at best it is being inaccurately advertised. Investing money in the stock market will NOT save the Egyptian economy. Actually, given the size of the value of the market capitalisation of the Egyptian stock market, nor will it save the stock market. The only silver lining to this idea is the potential gains you stand to make as an investor if you buy when the stock prices dive when the market finally opens. A couple of months down the line you could sell these stocks at higher prices and make a killing.

Back to saving the economy. You want to save the economy? Lovely sentiment. Save it by investing in new business ventures, in SMEs, donate money to micro-finance NGOs, donate money to the Food Bank and other charities, consume Egyptian products. THIS helps save the Egyptian economy. The REAL economy.

Now, the stock market has historically been called “the mirror of the economy”. Allegedly the performance of the market reflects the health of the economy itself. A friend, Zizo, once said it beautifully:

If your face looks messed up in the mirror, do you fix the mirror? or do you fix your face?

The stock market, originally, was invented to enable corporates to seek funding from the public. Companies would then issue stocks through an Initial Public Offering (IPO) giving purchasers of that stock ownership rights in the company by virtue of their stock (becoming shareholders) and the corporate now has cash to invest in expansionary activities. Whenever this is the case investing in an IPO helps boost the economy and injects cash into the companies.

Yet once these stocks are issued they are then traded on the secondary market (the one you hear about people trading on all the time). In this market you buy stocks from existing shareholders, the money you spend goes to them and you become the new holder of the stock. By buying stocks on the Egyptian stock exchange you are not growing the pool of investments in the country. Instead you are just passing around the paper that says you own part of a particular company. The company itself doesn’t get any of the money.

To give you a crude example, this solution of investing 100 LE in the stock market will have as much impact on the stock market as you buying your neighbour’s second hand Beamer would have on the BMW company (hint, the answer is no impact whatsoever).

The scary part is not that they are endorsing a futile exercise, the scary part is the opportunity cost of this investment. The money that will be flushed down the drain could have gone to better use at other venues. The stock market is a virtual economy, the money that will be spent there will be lost, leaked out of the system as foreign investors sell off their portfolios and take their money elsewhere. This money should instead be directed towards the real economy, real business generation, real production, real employment and real GDP growth.

So the next time someone tells you to invest 100 LE in the stock market, do me a favour, think twice. If you still decide to go through with it, make sure you acknowledge your real motives (looking for profit rather than looking to save the economy).


11 thoughts on “100 LE to Save the Egyptian Economy

  1. May I disagree?
    Stockmarket may be actually as fake as you are saying, however, company assets are values based on their stocks .. so when the company assets will be zero, some companies will be forced to close!!

  2. N: Hey you! Of course you can 🙂 Could you explain further though? I’m not sure I follow, to the best of my knowledge company assets are valued based on their book value accounting for depreciation. Do you mean a company’s investment portfolio? My view is that a company is only forced to close if its revenue is no longer covering its costs, to me that is completely independent of the price of its stock.

  3. anyone can have their own opinion but you listen to the experts first and i don’t believe anyone would be a bigger expert than samir radwan the minister of finance and he promotes this campaign and is pleading ppl to join

    wether you’re gonna join or not….how can anyone in such times where the least positive step should be appreciated , undermine and mock such a selfless campain to prevent our nation’s economy from crashing….its like ur donating to the country……it’s time encouragment not discouragment and this is the vibe this post sends

    every positive step should be appreciated regardless how small or bi it is especailly if it gathers all ppl to form an impact

    check this video at the end

  4. Omneya: For starters, I am grateful that you are not denying me my right to an opinion. A lovely sentiment which I share, in my eyes you are completely entitled to yours. I do disagree on some points and will list them below:
    1) Dr. Samir Radwan is a labour economist, kindly google his CV, and while I greatly respect the man, he is not an authority nor an expert on the topic at hand.
    2) I did seek expert advise, I’ve spoken to the former head of the Egyptian stock exchange and other stock market experts and they approve of my view.
    3) If you read other posts on my blog you will realize that I post with the greatest enthusiasm and with the best interest of the nation at heart. Even when I dismissed this suggestion I attempted to give people viable alternatives that wouldn’t be as futile and which could play a part in energizing the economy.
    4) If you see this initiative as charity, then please do go ahead, although you must realize that this charity is going to other citizens instead of to the government or to corporates who’s stocks are traded. You are better off giving the money to PDF or AYB or any of the other micro finance institutions here in Egypt. I’ve also heard talk of a bank account where people can contribute http://www.ahram.org.eg/The-First/News/66864.aspx

    Will watch the video and get back to you on it, can’t stream at the office 🙂

    • Dear Juka,
      you’re most welcomed dear.you’ve actually taken the initiative and shared your opinion which i’m sure was done with the purest intent of care and concern, as a form of advice for all those eager to help their nation not to be scammed, though the tone of the post was rather undermining if i may say.

      As for experts on stock market, I’ve personally watched the current head of the stock market on dream channel and an official in the stockmarket on arabiya both confirming the rewarding effect of such a campaign provided that alot of people share.and Ive personally spoken to technical analysts who are certified speakers who have both had the same opinion.

      concerning the point where you say the money goes to other peopl’s pocket, as i believe, when u pay money in the stock market that is to buy a stack…..so u actually bought somethin “the stock”, which makes u a legal contributor to the company “mosahem” and makes u entitled to a share of the profit….that’s why it’s an investment, if the company makes profit….both the company and you benefit…..nd if it makes losses….you don’t lose unless u sell the stock for a lower price…..but u can keep hang on it to it for better times……..and thats speaking about investing…..wich should be done at persons own experience and risk

      As for the trust funds arranged by national banks these are everywhere and the money gathered will be going to all the economy’s sectors not to specific companies…….

      so this is how i don’t find any of these ways “wether through buying stocks or payin in a trust fund” is a scam and represent effiecient ways for giving the stock market some push to start with……not the entire economy but the stock market which represents a major part of it

      what i find most overwhelming is actually what i found about samir radwan, he’s an economical and financial expert that is internationally acknowledged, so he definetly must have some idea what hes talkin about……

      Anywayz , regardless what anyone believes is an effective method or steps towards helpin the country , if i may kindly advise not to put others down even if it comes out of experience , maybe showing more concern would be welcomed more warmly

      thank you again for your genorousity to allowing us to post and comment and share ideas

      • Dear Omneya,

        Thank you for responding. I would love to tackle your points. With your permission, I will ask you to wait till the weekend as I’m currently stuck with a client submission due Thursday and will probably be pulling late nights the majority of this week.

        Expect a dedicated post on Saturday isA.

        BTW, how technical can I be with the jargon? You an econ or finance major?

      • Dear Omneya,

        My only qualm with your logic is the premise that boosting the stock market boosts the economy by association, as that relationship is non-existent. The only time these two universes are connected are through the primary market, whether it be stock initial public offerings, bond sales or government treasury bills.

        I’m trying to figure out a more visually appealing way to answer your comments, hope this helps for now. I explain a lot better in person, honest 🙂

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