It is safe to say that 2022 was a tough year for both retail and institutional investors. Along with the general market decline which led to losses, there have been rumblings of an imminent recession, which has many investors on edge as we approach 2023.
The beginning of a New year is a perfect opportunity to review your investing plan. However, that can be a little difficult to do this time around, given the many uncertainties hovering over markets.
In 2022, there were lots of rate hikes which came with massive repricing of risky assets. More rate hikes are expected in 2023 since inflation is still not in the target range. Against this backdrop, investors need to be cautious, especially since some market analysts believe there is an impending recession.
- Experts believe that one should structure portfolios around secular drivers of the economy. Technology is the most important driver and will continue to determine how value is created and captured.
- Crypto is also compelling as a long-term allocation and the entry levels seem very attractive. Despite the massive selloff in 2022, none of the blockchain or decentralized protocols has failed. So, the technology is vindicated and there are increasing institutional adoption and real-world use cases.
- We spoke to some investment experts for their forecasts and thoughts on how people should invest next year. Below are their recommendations.
Invest in dollar-denominated assets: According to Thelma Ugonna (Ani) Ohiri-Anyanwu, CFA, Nigerian investors will be naturally inclined to stay away from the Nigerian stock market due to the upcoming elections. To this end, she recommended dollar-denominated assets. She said:
- “As the election approaches in 2023, investors would probably stay away from the Nigerian stock market because of the increased uncertainties as the economy tends to shift in accordance with the outcome of the election and the Government’s actions and inactions. Some analysts have also forecasted a looming global recession in 2023.
- “I would generally advise a dynamic approach to investment allocation in 2023. My top investment picks will be dollar-denominated assets such as Eurobonds and ETFs, as I do not see the pressure on the naira easing off anytime soon. With the US stock market down, it will be a great opportunity to increase my exposure to stocks with good fundamentals that are currently cheap in preparation for the recovery of the market.
- “Also, to protect investments from increasing inflation and predicted stagflation, I would recommend diversifying internationally and increasing exposure to inflation-hedged assets such as Real Estate, Commodities, ETFs, etc.”
Invest in T-bills, real estate: Adesuwa Lilian Edokpolor, the Managing Partner at SEOLAHM Consulting, warned that 2023 will present some uncertainties for investors. She however recommended the following investments:
- “With the upcoming federal elections, the ongoing Ukraine-Russia war, and the ever-rising inflation rate, 2023 feels like an uncertain time for investors. However, with challenges comes opportunities, and for the smart investor looking to put their money to work, here are four options to consider.
- “US Treasury bills – In the past year, yields from US T-bills have more than doubled. If you are playing a long game, this is a great option for you. Given the current global economic outlook, this is a great way to secure foreign investments with attractive and secure returns.
- “Real estate – Real estate possesses a high tangible asset value which allows you to enjoy excellent returns with minimal volatility. For business owners looking to expand their operations, it can also be used as collateral to access loans from the bank. If you’re looking to diversify your portfolio in 2023, definitely consider real estate.
- “Stocks – 2023 is shaping up to be a solid year for dividend stocks, tech stocks, and ETF stocks. Opportunities await investors looking to invest in these options. However, be sure to stay aware of what the market is saying before taking the plunge.
- “FGN Bonds – With the continuous increase in CBN’s, Monetary Policy Rate (MPR), FGN bonds reached a record 15.5% in Q3’22 and are projected to rise in the coming year. For low-income earners looking to grow their portfolio in 2023, this is a great option.”
Look for undervalued real estate: Odinaka Linus-Nwokonkwo, CFA, a Fixed income dealer at a tier 1 bank, said:
- “Globally, in a recessionary environment, Real Estate and REITs prices would become undervalued and cheap as sellers dominate the market relative to buyers.
- “In Nigeria, investment opportunities are limited to public equity, bonds, Treasury bills, private equity, and real estate. Based on the budget deficit 10.78Trn, fixed income yields are expected to rise in Q1 and Q2 due to the urgency for accelerated borrowing coupled with the continued but reduced hawkish stance by the Fed which encourages capital flight from Emerging markets. Such high yields will drive cash out of stock markets into bonds and T-bills.
- “Q3 and Q4 may witness reduced yields as the pace of government borrowings are expected to decline. Also, the gradual shift from hawkish to expansionary monetary policy in the world should encourage capital flows into the country, thus further depressing yields. A gradual shift from bonds to stocks will be observed.
- “In summary, globally in 2023, investors should look for undervalued real estate during recessions. Investment in bonds and T-bills should be done between Q1 and Q2 2023 while equities investments should be made in Q4 2023 due to the expected decline in interest rates.”
Invest in essential goods and services: Adesuwa Okunbo Rhodes, the CEO of Aruwa Capital Management, said:
- “Aruwa Capital will continue to invest in essential goods and services such as healthcare, fintech, renewable energy, and daily consumer goods. We believe these are defensible sectors and will continue to thrive over the long term due to rapid population growth and urbanization. In addition, through our gender lens, we will continue to showcase the untapped potential of increased profitability for female-founded, female-led, and female-focused businesses that have been overlooked and underserved.”