It is safe to say that 2022 was a difficult year for both retail and institutional investors. Along with the general market slide leading to losses, there have been rumors of an impending recession, which has many investors on edge as we head into 2023.
The start of a new year is a perfect opportunity to review your investment plan. However, that may be a bit difficult to do this time around, given the many uncertainties hanging over the markets.
In 2022, there were many rate hikes that came with a massive revision in risky asset prices. More rate hikes are expected in 2023 as inflation is not yet in the target range. Against this backdrop, investors should be cautious, especially as some market analysts believe a recession is looming.
- Experts believe that one should structure portfolios around the 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 look very attractive. Despite the sell-off in 2022, none of the decentralized or blockchain protocols have failed. Thus, the technology is vindicated and there is increasing institutional adoption and real world use cases.
- We spoke to some investment experts to get 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 naturally be inclined to stay away from the Nigerian stock market due to the upcoming elections. To do this, she recommended dollar-denominated assets. She said:
- “As the 2023 election approaches, investors will likely steer clear of the Nigerian stock market due to growing uncertainties as the economy tends to turn in line with the election outcome and the actions and inactions of the government. Some analysts have also predicted an impending global recession in 2023.
- “I would generally recommend a proactive approach to investment allocation in 2023. My main investment options will be dollar-denominated assets such as Eurobonds and ETFs as I don’t see the pressure on the naira easing any time soon. term. With the US stock market down, this will be a great opportunity to increase my exposure to stocks with good fundamentals that are currently cheap in preparation for the market rally.
- “In addition, to protect investments from rising 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 Treasury bills, real estate: Adesuwa Lilian Edokpolor, managing partner at SEOLAHM Consulting, warned that 2023 will present some uncertainties for investors. However, she recommended the following investments:
- “With upcoming federal elections, the ongoing war between Ukraine and Russia, and the ever-rising rate of inflation, 2023 feels like an uncertain time for investors. However, with challenges come opportunities, and for the savvy investor looking to put their money to work, here are four options to consider.
- “US Treasury Bills: In the last year, US Treasury bill yields have more than doubled. If you’re playing a long game, this is a great option for you. Given the current global economic outlook, this is an excellent way to secure foreign investment with attractive and secure returns.
- “Real Estate: Real estate has a high tangible asset value that 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 bank loans. If you’re looking to diversify your portfolio in 2023, definitely consider real estate.
- “Stocks: 2023 is shaping up to be a strong year for dividend stocks, technology stocks, and ETF stocks. Opportunities await investors looking to invest in these options. However, make sure you are aware of what the market is saying before taking the plunge.
- “FGN Bonds – With the continuous increase in CBN’s Monetary Policy Rate (TPM), FGN bonds reached a record 15.5% in 3Q’22 and are projected to increase next year. For low-income people looking to grow their portfolio in 2023, this is a great option.”
Look for undervalued real estate: Odinaka Linus-Nwokonkwo, CFA, a fixed income broker at a tier 1 bank, said:
- “Globally, in a recessionary environment, real estate prices and REITs would become undervalued and cheaper as sellers dominate the market relative to buyers.
- “In Nigeria, investment opportunities are limited to public equity, bonds, T-bills, private equity and real estate. Building on the $10.78 trillion budget deficit, fixed income yields are expected to rise in the first and second quarters due to the urgency to accelerate borrowing coupled with the Federal Reserve’s continued but reduced aggressive stance that encourages capital flight from emerging markets. Such high yields will pull cash out of the stock markets into Treasury bonds and bills.
- “The third and fourth quarters may see reduced returns as the pace of government lending is expected to slow. In addition, the gradual shift from aggressive to expansionary monetary policy in the world should encourage capital flows into the country, further depressing yields. A gradual shift from bonds to stocks will be observed.
- “In short, globally in 2023, investors should look for undervalued real estate during recessions. Investment in Treasury bills and bonds should be made between the first and second quarters of 2023, while investments in shares should be made in the fourth quarter of 2023 due to the expected decline in interest rates.
Invest in essential goods and services: Adesuwa Okunbo Rhodes, CEO of Aruwa Capital Management, said:
- “Aruwa Capital will continue to invest in essential goods and services such as healthcare, fintech, renewable energy, and everyday consumer goods. We believe these are defensible sectors and will continue to thrive in the long term due to rapid population growth and urbanization. Additionally, through our gender lens, we will continue to show the untapped potential for increased profitability for companies founded, led by women, and focused on women that have been overlooked and underserved.”