Forbes Middle East
Forbes Middle East

Investing

Keeping A Watchful Eye

Abderrahim Etouil
Keeping A Watchful Eye

 Cold War tensions amongst the worlds great powers started to emerge again last year, but this time with completely new weapons. Those who keep an eye on the currency markets realize that the economic war between the United States and Europe is fierce, particularly regarding their two main weapons: the dollar and the euro. Though suffering within different contexts and to varying degrees, the dollar and the euro had a bad year overall, with rates for both currencies plunging to all time lows.


Investing in Forex is a big risk. However, Philippe Ghanem, Managing Director of Abu Dhabis ADS Securities whose capital amounts to $400 million, believes that the currency market (Forex), was the biggest winner from the crisis that peaked in 2011. Indeed, last year currencies dominated old_news headlines, starting with a political crisis concerning two major world currencies. In May 2011 American-Chinese relations were tested when Washington asked Beijing to amend the protective laws regarding its currency. This request was driven by American beliefs that China devalues its currency significantly.

After that, focus shifted towards the problem of the dollar and its fall against the euro in the midst of the American sovereign debt crisis which saw debt levels reach $14 trillion. U.S. President Obama was left with few options but to apply quantitative easing to inject money into the economy. This measure saw the U.S. government issue dollar bills without having gold or other commodity assets to evaluate against, raising doubts about the value of the dollar.

The year ended with statements from European presidents who feared dissolution of the euro and a return to old currencies. Disregarding this as a significant concern, Ghanem states cheerfully: Would currencies disappear and no longer exist? Of course not; if a currency falls or collapses, you can be sure that another will rise. Ghanem ascribes his confidence in this market to its global growth, where the daily average of the capital cycle in the Forex market increased from $2 trillion seven years ago to around $3.2 trillion by the end of 2011. He expects this figure to exceed the $4 trillion mark soon, making it the most active investment market in terms of cash circulations, worldwide.

In general, the Forex market may not be safe but it is highly profitable. Ghanems company engages in daily transactions ranging from $300 billion to $400 billion. Reflecting his positive approach, Ghanem states There is no deterministic loss in the currency market; if the dollar loses, the euro wins and vice versa. Ghanem also indicates that the minimal daily losses incurred by investors in Forex, do not exceed 2%, which make it a profitable market. Daily losses in stock markets can reach 10% with this percentage increasing to much higher levels in other markets.

The Forex market increases options to buy and sell a range of currencies every day, which, combined with growing investor expertise, increases profit chances and reduces risks.

Ghanems optimism, where Forex is concerned, stems from the fact that this investment market witnessed the highest international liquidity rates last year. Ghanem also notes that some investors resorted to the currency exchange market after accumulating losses in the stock and real estate markets. They came to this market because they can directly control their money, says Ghanem, adding, The investor is no longer willing to invest his money in asset management companies, where the manager talks to him and says: Youve lost 20% of your money, and keep in mind that well take 10% out of it as management fees. He also remarks that the financial crisis has made investors more cautious and more inclined to directly manage their own money. This option is made available by the currency exchange market that Ghanem describes as continuously profitable.

Forex economic expert Nigel Verdon, agreed with Ghanem that the Forex market presents big opportunities to make a profit, and that it has maintained a high level of  performance over the last few years. He also seconded Ghanems positive expectations for the market moving forward. However, Verdon disagreed with the suggestion that the Forex market is risky and not always profitable. Rather than attributing risk to the market, Verdon states that risk results from the fact that you may lose all you have through one bad decision on one bad day. He compares this market to gambling whereby no matter how experienced you are, loss is always a possibility. Regardless of your knowledge, studies, and successful strategies, the rate of success will not be higher than 80% with the remaining 20% down to chance.

Over 80% of transactions are based on currencies with the greatest liquidity, known as Major Currencies such as the U.S. dollar, euro, pound sterling, Swiss franc, and Japanese yen. Despite all indications that the dollar will maintain its position as the worlds main currency, competition may strike from a distance. The euro is not in a position to overthrow the dollar from its throne. Ghanem asserts that 2012 will not be the year of dollars and euros, pointing out that the future of Forex may lie in the hands of the currencies of emerging economies, with the Indian rupee and the Chinese yuan leading the way. As for the Arab world, Ghanem believes that the coming months will witness significant growth in the currencies of countries affected by the Arab Spring such as the Egyptian pound and Tunisian and Libyan dinars.

Ghanem also acknowledges that there is an increasing demand for Arab currencies, demonstrated by the fact that ADS Securities opens three to eight new accounts every day. Ghanem expects that this demand for Arab currencies will increase over the coming three years, but states that in order for this to happen, we need to have strong companies in the currency exchange. He also adds that the currency exchange market in the Arab world is safer than in Europe and America; a situation which, according to him, is attributable to the irresponsible spending and unjustifiable mistakes made by decision makers. Ghanem says that the laws regulating the currency market are stricter in the Arab world, which reduces the risk in this region. Last year, Abu Dhabi received many investors from Europe and America interested in currency trading; this shows the level of confidence that we enjoy here, he adds.

Amongst the problems that this sector encounters in Europe and America is the difficulty of establishing a currency exchange company and the huge amount of capital required to do so. Conversely, in the Arab world and the Gulf countries in particular, banks are still strong and capable of financing such projects.

2011 witnessed big growth for Forex with equal or even greater growth anticipated for 2012. Some currencies will have a difficult year, particularly the euro; nevertheless, the market size in general will increase in 2012, says Ghanem. In light of this assertion, he advises investors to seize opportunities but take precautions, avoid unnecessary risks, and deal only with recognized and reputable brokers with adequate capital. Additionally, the investor needs to be disciplined; if he achieves expected profits, he must sell immediately and not risk losing everything by holding out in the hope of gaining more profits. Furthermore, Ghanem advises investors to stick to their fields and not to take risks in a sector that they do not understand. In a final word of advice, Ghanem explains that 2012 is not the year to take risks but to maintain and protect what you have.
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