Analysts have said it is better to invest in short-term financial instruments instead of holding cash amid rising inflation and interest rates in the country.
The inflation rate in Nigeria accelerated to 19.64 percent in July, the highest in almost 17 years, according to the National Bureau of Statistics.
Akintoye Oyelakun, portfolio manager at Cordros Asset Management, said real return is affected by inflation, adding: “Keeping cash means inflation is fully affecting one’s funds.”
“Instead of holding cash, several money market funds have a very low-risk, investment grade, that offers you up to a 9.0 percent net yield. They are also very liquid. You can have your funds there pending the time you are confident enough to take position in the equities market,” he said.
The Central Bank of Nigeria has raised its key interest rate twice this year to tackle surging inflation rate. The Monetary Policy Rate was first raised in May to 13 percent from 11.5 percent and then to 14 percent in July after the NBS reported that inflation hit a five-year high of 18.60 percent in June.
“In times of rising interest rates, it is often advised that investors stay at the shorter end of the yield curve,” Aremu Oladimeji, an investment analyst at an investment firm, said.
“In simple terms, invest in liquid and short-term instruments because you want to be able to ensure liquidity to keep investing in instruments as yields trend upwards,” he said. “We are in a rising interest-rate environment. In times of rising interest rates, the equities market will record price declines.”
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Omobola Adu, an investment research analyst at Afrinvest, said with the current economic environment, investing in the stock market may not be profitable for active traders “as you’d expect profitability of companies to be under pressure.”
Analysts explained that for liquidity reserve and protection of purchasing power, short-term investments are good options.
They said investors should consider their investment goals, their age and risk tolerance before making investment decisions.
Adu said the rising rates should mean interest rates in fixed income securities should go up. “And we have seen that in the past few months. With that in mind, investing in short-term fixed income assets would be more profitable for investors compared to long-term fixed income securities and equities.”
Oyelakun said anyone seeking to invest must first understand their risk appetite before going into equities or holding cash.
“They need to establish their risk appetite and establish their investment objectives. This would then help them to form a good strategy.”
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