To suggest that the average Nigerian investor faces daunting odds is an understatement. Global equity valuations have been hit hard by rising inflation and interest rates. Recession is a word on more people’s lips, and Russia’s invasion of Ukraine is entering an even more uncertain phase.
Faced with such pessimism, we turned to investment advisers and financial specialists to find out where they saw opportunities. At a time of relatively high inflation and slowing economic development, our experts have differing opinions on which types of stocks are most likely to perform well.
Even with typical market ups and downs, investments have consistently outperformed inflation. All you need to know is how to diversify your risk and what tactics to use to grow your money.
Thelma Ugonna Ohiri-Anyanwu, CFA, Top Tier 1 Banker
- With rising global and domestic inflation and the continued devaluation of the naira steadily eroding the value of investments and money, the worst decision one can make is to leave your idle money in the bank.
- With these factors in mind, how would I invest the N500,000 given to me today?
- My choice of investment vehicles would center around inflation hedging and inflation hedging and further naira devaluation. For this purpose I would focus on dollar denominated investments such as Eurobonds, real estate investments, commodity EFTs such as (iShares S&P GSCI, Invesco DB Energy funds), dollar mutual funds and value stocks (domestic and global).
- I would also invest about 10% of the funds in risk-free investments such as local mutuals, this to build up an emergency fund.
- As a general advice, when deciding which investment vehicle to choose, always assess your risk appetite, ie your willingness and ability to take risks.
Victor Ofili, Independent Financial Advisor
- Deciding where to invest half a million naira would depend on a number of factors such as age, goal, time horizon, risk tolerance or even your ability to take risks.
- For example, if you are young, say between 18 and 40, there is a greater tendency for risk tolerance and therefore you can actively invest 60% to 90% of your money in high yield stocks (equities) . The keyword here is active stock trading which is potentially more rewarding than passive stock investing.
- For example, if you had invested in Guinness shares in March at around 60 naira per share, you would have cashed out at 110 naira per share in early May. Similarly, shares of Transcorp rose from around N1 per share to around N1.40 per share. Seek advice from your financial advisors when selecting fundamentally sound stocks.
- The remaining 10% to 40% (of 0.5 million naira) can be invested in cash-like assets such as money market securities (treasury bills) or investments (term deposits with banks or investment companies) at attractive rates, generally between 6% per annum and 10% per annum.
- The reverse is the case for people close to retirement age for whom security is essential and the availability of liquidity is a necessity. In addition to stocks and money market investments, other alternatives, especially for young people, include currency-denominated assets (via collective investment schemes), crypto assets, real estate (via REITs) and commodities in which they can commit up to 40% of their funds in accordance with the individual’s allocation preference.
Victory Osarumwense, Level 1 Banker Fixed Income Trader
Give me 500,000 naira today and I would start by establishing the following:
- Investment objective – Moderately high return and protection against inflation
- Investment Horizon – Medium to long term (3-10 years)
- Risk Appetite – Moderate to high risk tolerance.
Based on the considerations above, I would invest 80% of the N500,000 (N400,000) in emerging market Eurobonds of medium duration (3-5 years) – for example, Ghana Eurobonds .
Raison:
a) Ghana Eurobonds are currently trading at high yields (levels of 19.4-20%), meaning I would buy them at a relatively steep discount in the secondary market. Also, at maturity, I would get the face value ($100/unit) which will be higher than the discounted purchase price (eg, $71/unit).
b) In addition, the coupon rate paid semi-annually on these medium duration bonds is reasonable (6.375% to 8.125% on the face value in USD).
c) Preservation of my Naira against the effect of inflation.
The remaining 20% will be invested in REITs.
Raison:
a) Real estate generally protects against rising inflation.
b) The amount in question is small (N100,000) so buying REIT would give me the opportunity to hold part of a property for a long time to benefit from the increased future value.
c) Exploration of alternative investments outside the traditional asset class.
Ayobami Omole, Analyst at Tellimer
- Two investment options come to mind. The first, which is the simpler and safer of the two, is to convert to dollars and invest in Eurobonds through a mutual fund. This should earn me about 6% per year. The reasons are clear – as the Fed rises, the dollar should strengthen, and we already have concerns about the value of the Naira, which I don’t think will improve anytime soon. Also, an investment in Eurobonds is less volatile than stocks, so I can leave the money there and be at peace.
- The other option is to invest directly or indirectly in commodities. Why? We are in a commodity super cycle, and the war between Russia and Ukraine has made this situation worse. The price of almost all commodities is rising, and even you can feel it. Getting known directly will require buying the items, for example palm oil or corn, and storing them until prices rise again, but this is stressful as logistics have to be taken into account and storage – it’s like running a business. Thus, the most logical option is to look for listed companies that have favorable exposure to the supercycle, for example, palm oil producers, agribusinesses, etc.
- Or I could do both – diversify!
Disclaimer: These opinions do not in any way reflect those of the companies for which these people work.
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