To suggest that an average Nigerian investor faces formidable obstacles is an understatement. Global Stock market 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.
We looked to investment advisers and financial specialists in the face of such doom and gloom to find out where they see areas of opportunity. In an era of relatively high inflation and declining economic development, our experts have differing opinions on which types of stocks are best suited to perform well.
Even with the market’s typical ups and downs, investments have consistently outperformed inflation. All you need to know is how to diversify your risk and which tactics to use to assist your money grow.
Thelma Ugonna Ohiri-Anyanwu, CFA, Top Tier 1 Banker
- With rising global and domestic inflation alongside the continuous devaluation of the Naira both steadily eroding the value of investments and money, the worst decision that one can make is leaving your money idle at the bank.
- With these factors in mind, how would I invest N500,000 given to me today?
- My choice of investment vehicles would be centred around hedging against inflation and inflation hedging and further devaluation of the naira. To this effect, I would focus on dollar-denominated investments such as Eurobonds, Real Estate Investments, Commodities EFTs such as (iShares S&P GSCI, Invesco DB Energy funds), dollar mutual funds and value Stocks (both domestic and global).
- I would also invest about 10% of the funds in risk-free investments such as local mutual funds, this is to make provision for emergency funds.
- As a piece of general advice, when deciding on which investment vehicle to settle for, always assess your risk appetite i.e your willingness and capacity to take risks.
Victor Ofili, Independent Financial Adviser
- Deciding where to invest half a million Naira would depend on a number of factors such as age, objective, time horizon, risk tolerance or even your risk ability.
- For instance, if you are young, say 18 to 40 years, there is a greater tendency to tolerance risk and so you can actively invest 60% to 90% of your money in high returns equities (Stocks). The keyword here is active stock trading which is potentially more highly rewarding compared to passive stock investing.
- For instance, if you had invested in shares of Guinness in March at around N60 per share, you would have cashed out at N110 per share in early May. Similarly, Transcorp shares moved from around N1 per share to around N1.40 per share. Request guidance from your financial advisers as you select fundamentally sound stocks.
- The remaining 10% to 40% (of the N0.5million) may be invested in near-cash assets like money market securities (Treasury Bills) or placements (time deposits with banks or investment houses) at attractive rates, usually between 6%pa to 10%pa.
- The reverse is the case for individuals who are close to retirement age for whom safety is key and cash availability is a necessity. Aside equities and money market investments, other alternatives especially for young people include foreign currency denominated assets (via collective investment schemes), crypto assets, real estate (via REITs) and Commodities to which they can commit up to 40% of their funds in accordance to the individual’s allocation preference.
Victory Osarumwense, Tier 1 Banker Fixed Income Trader
Give me N500,000 naira today and I’d start by establishing the following:
- Investment objective – Moderately high returns and protection against inflation
- Investment horizon – Mid-term to long-term (3-10 years)
- Risk appetite – Moderate-high risk tolerance.
Based on the above considerations, I would invest 80% of the N500,000 (N400,000) in a mid-tenured (3-5 years) emerging market Eurobonds – e.g., Ghana Eurobonds.
a) Ghana Eurobonds is currently trading at high yields (19.4 -20% levels) which means that I’d be buying them at a relatively deep discount from the secondary market. Furthermore, upon maturity, I’d get the face value ($100/unit) which will be higher than the discounted purchase price (e.g., $71/unit).
b) In addition, the coupon rate paid semi-annually on these mid tenured bonds are reasonable (6.375%-8.125% on the USD face value).
c) Preservation of my Naira against the effect of inflation.
The remaining 20% will be invested in REITs.
a) Real estate generally protects against rising inflation rate.
b) The amount in question is small (N100,000) so buying REITs would give me the opportunity to hold a portion of a real estate property for a long period to benefit from the increased future value.
c) Exploration of alternative investment outside the traditional asset class.
Ayobami Omole, Analyst at Tellimer
- Two investment options come to mind. The first, which is the easiest and safest of the two, is converting to dollars and investing in Eurobond through a mutual fund. That should earn me about 6% per annum. The reasons are clear- As the fed hikes, the dollar should become stronger, and we already have concerns around the value of the Naira, which I don’t think will improve anytime soon. Also, a Eurobond investment is less volatile than stocks, so I can leave the money there and be at peace.
- The other option is to invest in commodities either directly or indirectly. Why? We are in a commodity supercycle, and the Russian Ukraine war has worsened this. The price of almost every commodity is increasing, and even you can feel it. To gain exposure directly will mean buying the items, e.g., palm-oil or maize, and storing till the prices increase further, but this is stressful because you have to consider logistics and storage – it’s like running a business. So, the most logical option is to look for listed companies that have favourable exposure to the supercycle, e.g., Palm oil producers, Agro companies etc
- Or I could do both – diversify!
Disclaimer: These opinions in no way reflect that of the corporate organizations these individuals work for.