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What to do with the naira as inflation hit a 28-year high

To be honest, a significant number of investors are already discouraged from investing in Nigeria, the largest frontier market on the continent, due to the country’s rapidly depreciating naira, rapidly rising inflation, and a few high-yielding investment opportunities (apart from the NGX bullish run).

Nigeria’s inflation rate surged in January, hitting nearly 30% on an annual basis due to skyrocketing food prices and the naira’s decline to all-time lows.

According to NBS data, consumer inflation increased in January for a record 13 times, from 28.92% in December to 29.90% in January of the previous year.

Inflation has a detrimental effect on the average investor’s portfolio because real progress toward financial goals requires returns that are continuously higher than inflation.

This suggests that since the current inflation rate is at a 28-year high, the average Nigerian investor needs to search for yields higher than that.

It is imperative to bear in mind, nevertheless, that investing during an era of escalating inflation and rapid loss in the naira’s value has no guarantees.

Financial assets can, at most, be safeguarded from inflation/devaluation but returns are never guaranteed.

Protecting your finances against devaluation due to inflation should be the primary focus of your plan of action.

The front-loading approach is recommended in cases where you can increase the value of your assets before the inflation curve.

The rising cost of goods and services combined with the sharp depreciation of the value of the naira poses one of the largest risks to investors.

Inflation has a detrimental effect on the average investor’s portfolio because real progress toward financial goals requires returns that are continuously higher than inflation.

Commodities’

Several research indicates show there is often a correlation between inflation and the supply and demand of key commodities, with commodity prices generally rising during periods of inflation.

Therefore, investors in commodities may benefit greatly during periods of high inflation.

To stay afloat, you can invest in real commodities or ETFs that are centred around commodities. These funds provide you with exposure to the dollar, which can shield you from the devaluation of the naira, and they invest in derivatives linked to a single commodity or a basket of commodities.

Another way to invest in commodities is to purchase the stock of firms that produce them, such as mining and oil corporations. These businesses usually see an increase in sales and profits during commodity-driven inflation.

But remember that commodities are very volatile and subject to shifts in supply and demand.

The European/American stock market

Theoretically, investments made in foreign-domiciled stock markets should protect holders against inflation and the naira.

This is because raising prices should result in more revenues, which in turn raise profits and share values.

Nevertheless, this isn’t always the case because different industries react to inflation differently and some businesses aren’t able to adjust their prices to cover rising costs.

Financial advisors advocate for the concentration of strong firms with great pricing power and high entry barriers when it comes to investment.

Additionally, you can seek out companies in strategically important sectors, like the banking sector and cheap blue-chip stocks, which offer yields that at least somewhat offset

Eurobonds

In essence, Eurobonds are financial securities issued by a country or corporate entity in a currency other than their own.

The Eurobond Fund is a mutual fund that makes investments in Eurobonds issued by the Federal Government of Nigeria denominated in dollars as well as other Eurobonds that satisfy specific requirements and are Securities and Exchange Commission registered.

Eurobonds are like fixed-income securities as bond instruments. It has a yield, an acquisition price, a coupon, and an interest rate paid on bonds with biannual payments.

After the main auction is over, investors who were not able to participate in the first round can buy Eurobonds on the secondary market.

Crypto market

Putting money into crypto assets might be the riskiest choice, however, Bitcoin is ranked among the top investment asset class in terms of return in the last decade.

On good days, they generate exceptionally high yields very rapidly. But on bad days, it’s easy to lose the value of your belongings.

Because of their extreme price volatility, cryptocurrencies are a riskier investment option than traditional ones. For individuals who desire exposure to assets denominated in dollars, stablecoins are an option, but they are unregulated and come with a high risk.


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