Amid the low-interest-rate environment, high inflation and currency risks, there are investment strategies that can help investors reap from opportunities and close the gap in negative returns.
Investment analysts polled by BusinessDay tipped that investing in commercial papers, dollar investment and the stock market could reduce the impact of inflation, devaluation and other risks on savings and investments.
With the accelerating inflation, currently at 15.4 percent, and low-interest rate on the 364-day Treasury bill at 5.4 percent, the real return on investment across many Nigerian instruments remained in the negative.
The World Bank has also projected that Nigeria’s inflation rate may be among the world’s highest in 2022.
BusinessDay polled six investment analysts to obtain their views on the best investment strategies in 2022.
Moses Ojo, chief economist, PanAfrican Capital Holdings Limited
During the year, there will be a lot of borrowing by the federal government to fund the budget, so we expect to see an increase in the fixed income rate.
There will also likely be a moderation in the returns in the equity market, so we are likely going to see investors take their investment from the equity to the fixed income market where they will likely find better returns.
In the first quarter, I expect to see the equity market move up as investors attempt to qualify for dividends that would be declared. In the second half of the year, when the federal government will be attempting to raise funds both in the domestic and international market, we expect to see a slight hike in the fixed income rate.
For the first quarter, equity investment is a good one but as we move towards the second half of the year, the fixed income market will be a good one for investors especially short-term investors that are after returns and not capital appreciation.
Ayodeji Ebo, head, retail investment, Chapel Hill Denham
Investors must set objectives and understand their risk appetite to be able to maximize investment opportunities.
Rather than invest in treasury bills, you can look at commercial papers that come with higher premiums. It comes with higher risks but you can also look at the names of the companies issuing it before investing. There would be more issuance in the first quarter of the year, so investors should position themselves
It is also very important for investors to look at their exposure to dollar investment, maybe in terms of dollar mutual funds. This will help hedge their savings against inflation and any depreciation or devaluation of the naira.
The Nigerian stocks would also perform well in 2022 especially the financial services sector, telecommunication sector and industrial goods sector despite being a pre-election year.
Read also: Nigerian stocks to watch in 2022
Objective differs across investors, risk appetite differs so you will need to work with your portfolio manager to guide you but generally speaking, between 40-50 percent in money market investment, 30 percent in dollar investment and about 20 percent in equity and 10 percent in an alternative asset because of the high risk.
Gbolahan Ologunro, an economist at Lagos-based Cordros
The fixed income market will present opportunities for investors to generate good returns as yields are likely to retrace higher. This will be facilitated by the increased reliance on the domestic debt market in financing the high budget deficit alongside election uncertainties that will fuel demand for higher returns on risk-free assets.
Income investors can also get cash flows from dividend-paying stocks particularly the banking names given the attractive dividend yields.
Being a pre-election year, there will be consternation from foreign investors which will drive demand for dollars particularly in the second half of the year. Consequently, a long strategy on the greenback will also yield decent returns in the year.
Ayorinde Akinloye, investment research analyst, United Capital Plc
Investing in 2022 would require a very strategic and organized approach to achieving investment objectives. While the interest rate environment is currently uninspiring, that is expected to change during the year which should provide interesting opportunities for investors. Thus, a bit of patience for the yield environment to revert higher would be investors’ best approach.
That said, expectations of higher yields would be negative for the equities market. Nevertheless, there would still be pockets of opportunities on stocks expected to deliver strong earnings. Thus, careful screening of companies with solid numbers in 2022 could provide equity returns for investors later in 2022.
Omosuyi Temitope, investment strategy analyst, Afrinvest Limited
There are opportunities across all asset classes, what is more important is the right timing, investment objective and risk appetite.
Although we have been seeing a significant decline in yield in Treasury bills and it may not be so attractive but if an investor needs security and is risk-averse, they can consider the fixed income market regardless of the low rates.
But if they can stomach some risk, the equities market is still attractive regardless of the pre-election year sentiments. The important thing is to know the right stocks to pick, when to invest and when to exit.
Ahmed Jinad, senior investment research analyst, Meristem Securities
Even though yields are low in the fixed income market, there are still instruments that are high-yielding but they come with a higher level of risk and they might not be applicable to retail investors.
Therefore, investors must match their expectations with their risk appetite. There are times investors will need to take a lower return if they are risk-averse and when market conditions improve they can take a more aggressive approach.
For the equities market, the factors are there to ensure the market is not bearish. Since the pandemic, there has been a higher level of participation by domestic investors who are more attuned to the uncertainties. This means they are not quick to sell off as foreign portfolio investors would, especially in a year that will see a lot of activities ahead of next year’s elections, so we can expect less volatility.
Earnings performance from last year showed most companies reported good results in 9 months so we would see companies paying dividends even if they do not increase it, they might sustain what they did last year. Overall, the triggers are there for the stock market to remain positive.
