It’s a new year and investors are evaluating various asset classes with the hope of selecting the most profitable investment opportunities in 2025.
In 2024, the naira’s depreciation against the dollar fuelled significant returns for those holding dollar savings. The Nigerian stock market also surged, driven by strong performances across key sectors such as oil and gas and insurance.
Similarly, the local fixed-income market also experienced an increase in its yield due to rising interest rates. Essentially, understanding the trajectory of these asset classes in 2024 can help to make informed investment decisions this year. Here’s a closer look at eight asset classes that can make for strategic investment decisions in 2025.
Dollar savings
The naira return for investors with dollar savings (based on the depreciation of the naira) stood at 69 percent in 2024. This excludes the dollar returns on investments such as dollar mutual funds, fixed deposits in dollars, US stocks, among others.
Ayodeji Ebo, an investment professional, said that while investing in dollar-denominated assets will still be recommended in 2025, there will likely be less naira depreciation/volatility in 2025.
“On a base case, we project the naira will depreciate by 14 percent and 17 percent to N1,800/S 1.00 and N1,98051.00, respectively, at the official and parallel FX markets.
“However, the Central Bank of Nigeria (CBN) must improve the supply of FX so that this threshold is not crossed,” Ebo said.
Nigerian stocks
Stock investors enjoyed significant returns in 2024. The Nigerian Exchange All Share Index, which tracks the performance of all listed stocks, returned 35 percent in 2024.
The Oil & Gas, Insurance, Consumer Goods, Banking, and Industrial indices gained 160 percent, 123 percent, 54 percent, 20 percent and 32 percent, respectively.
Ebo said that he still anticipates a positive close across the sectors in 2025 on the back of entry from foreign portfolio investors (FPIs).
“On a dividend yield basis, the stock market appears less appealing compared to fixed-income investments,” he said.
Analysts at CardinalStone also suggest a 45 percent allocation of portfolio to equities.
The analysts advised reducing allocation to developed market equities given expected naira stability, geopolitical concerns, and overheated developed market indices.
Notable sectors include telecommunications which would benefit from a tariff review; insurance due to prospects for recapitalisation; and agriculture that is driven by strong product demand.
Read also: Top 10 African countries attracting the largest private sector investments
US stocks
The US stock market maintained its positive form in 2024 supported by the commencement of interest rate cuts in the third quarter (Q3) of the year.
The S&P 500 (which captures most capitalised stocks in the US), the US Nasdaq, Dow Jones and Russell 2000 indices returned 26 percent, 35 percent, 14 percent and 16 percent in 2024, respectively.
These returns exclude the gains from depreciation for investors who invested in naira.
“We expect a stronger performance for the foreign equities market in 2025 given the further expectation of interest rate cuts, albeit slow, while Donald Trump’s policy on ‘America first’ is expected to improve corporate earnings,” Ebo said.
Local fixed income
In 2024, the CBN hiked rates by 875 basis points, leading to an 84.3 percent decline in average system liquidity level to N59.0 billion.
As a result, average treasury bills (T-bills) yield re-priced higher to 25.8 percent from 7.7 percent the year before.
Analysts at CardinalStone advised investors in their 2025 outlook to allocate 40 percent of their portfolios to the fixed income market.
It further said that investors should allocate 25 percent to the domestic fixed income market with more funds to long-duration bonds. However, it said they should maintain a smaller share in short-term instruments for liquidity.
Foreign fixed income securities
Ebo, in his report, said that due to the delay in the anticipated interest rate cuts in 2024, the prices of fixed-income instruments did not appreciate as much as expected and remained significantly discounted compared to their par value.
Benchmark FGN bonds also advanced 458 basis points to close 2024 at an average of 19.1 percent.
“However, we expect to see gains in 2025 due to further anticipated interest rate cuts, which should lead to price increases in fixed-income instruments,” he said.
CardinalStone Securities suggested a 15 percent allocation to foreign fixed-income securities in non-developed market Eurobonds with high yields and in countries where fears of fiscal risks are unlikely to limit the scope for bond yields to fall.
Digital assets
Ebo further said that the continued global adoption and regulation of digital assets are expected to create more opportunities for growth in 2025, noting that the Trump administration’s support for cryptocurrency could further enhance performance.
Gold
Gold or Gold-tracked products (ETFs) performed well in 2024.
The gold asset class continues to be a haven. The SPDR Gold Trust returned about 28 percent in 2024.
“This good outing is expected in 2025 as investors seek alternative investment classes,” Ebo said.
Real estate
This is intended for savvy and cash-heavy investors. The real estate sector experienced a growth of 5.4 percent in Q3 2024, driven by the demand for low-cost and affordable housing.
This growth occurred despite rising prices caused by the depreciation of the naira and higher borrowing costs.
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