Investing in an inflationary environment holds significant implications for investors, investment types, return on investment and risks. The prevalent global inflationary pressures have also become an inevitable fact of life bedeviling economies, businesses, households, and individuals. Now, better than ever must investors consciously seek out investment advisors to help them navigate and stay afloat the murky waters. In this interview, Dr. Ebere Agbogun, the Managing Partner of REKIT Financial Advisors Limited, a leading Independent Corporate Investment Advisory Firm in Nigeria, gives insight into how to ensure return on investments during inflation.
HOW does inflation at 21.09 per cent impact the nation’s capital market?
Let us start by succinctly explaining what capital market is. Capital market is like every other market where good and services are exchanged at a given price either fixed or variable between buyers and sellers. In capital market, buyers and sellers engage in the trade of long-term financial securities including fixed income (bonds) and equities. Individuals and institutions are typically the major participants in capital market. With inflation currently around 21.09 per cent as of October 2022 and monetary policy rate at 16.5 per cent, there is no gainsaying that investment return will most likely nose-dive because inflation has the potential to erode the purchasing power of investments. Inflationary pressures also stifle capital market performance as they result in high cost of borrowing which ultimately increases the cost of capital, thereby making it challenging for companies to access long-term financing. When companies cannot borrow and spend, they are likely to struggle to survive depending on their fundamentals. Inability to access long-term capital could negatively impact the financial performance of such companies and their financial securities (bonds, equities) traded in capital market.
What solution would you proffer to curb the incessant rising inflation in the country?
Specifically, no economy as we speak today around the globe has a crystal ball that suggests exactly when the inflationary pressures will end. Globally, Central Banks have taken to increasing monetary policy rates as a tool for ensuring that inflation stays within defined targets. The Nigerian central Bank is not an exception as MPR was recently increased to 16.5 per cent, which of cause does not eliminate the fact that the real return on most investments especially debt may still be in the negative. Therefore, to curb the rising inflation in Nigeria, there must be an alignment of our monetary and fiscal policies as the monetary policy effectiveness is at best flawed by the structural issues bedeviling our domestic macroeconomic and fiscal environments. The structural issues are multi-faceted, ranging from rising public debt profile, exchange rate debacle, high import dependency, high cost of importation of essential goods, poor state of critical infrastructure, insecurity, flooding, fuel scarcity, electoral campaign season to budget deficit. No monetary policy can effectively tackle these challenges in isolation. Investors need to step back, re-evaluate the performance of their investment portfolios, rethink their investment objectives and preferences, properly dimension risk, and generally evaluate the impact of inflation on their investments. Working with investment advisors in uncertain times will help investors better understand how to protect their investments from the claws of rising inflation by selecting asset classes that historically outperformed the market during inflationary conditions. For instance, bonds are good for low-risk income-oriented investors while value stocks, USD-denominated investments, real estate and commodities offer great hedge opportunities for investment portfolios against inflation.
How do you see return on investment in Nigeria relative to developed markets?
In my opinion, Nigeria is China 25 years ago with huge untapped potential. Make no mistake, inflation is a global phenomenon currently affecting developed as well as developing economies. United States, United Kingdom, Europe, Asia, Africa, everyone is in this cyclical quagmire with attendant outcomes including rising cost of goods and services, increasing interest rates, and imminent recession. Although, most foreign portfolio investors may appear to be de-risking their portfolios and fleeing to developed markets for safety, Nigeria still presents huge investment opportunities. A case in point for me would be the state of disrepair of our critical infrastructure which is a huge opportunity for long-term investing and significant return above inflation. The opportunities lie here in our country. I cannot over-emphasize the need for individuals and institutions to engage independent professional and regulated investment advisors who understand the markets and can guide them on how to win in every economic conditions.
How can an average investor access information to help him or her determine the assets that can hedge against inflation?
This underscores my prior recommendation to the investing public to ensure that they continuously win regardless of the economic situation though cautious and informed investing. Working with experienced investment and financial advisors is your winning ticket in any economic condition; bearish or bullish. A sound investment and financial advisor will guide investors to survive and thrive under every market condition.
In your own view, how can the Government address the issue of forex scarcity and inflation in the country?
Like I mentioned earlier, forex debacle or scarcity as you put it is only one of the several challenges that plague our country today and constitute the bane of our economic performance. To tackle these challenges, Government must diversify our economy, invest more in the non-oil sector (ICT, Agriculture) which contributes over 93 per cent to our gross domestic product (GDP) albeit abysmally to our national revenue, substitute import with export, aggressively grow production and exports, and urgently address security and bunkering challenges crippling oil production to ramp up forex earnings and foreign reserve while bumping up the Naira. To address inflation which is currently a global struggle challenge, Government must be deliberate and urgent about addressing the poor state our critical infrastructure to effectively promote trade which is critical for ramping up earnings in forex and local currency.
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Government must eschew anti-enterprise regulations and promote enablers through sound and well-aligned monetary and fiscal policies for businesses to thrive. Notwithstanding the subsisting reforms geared towards the ease of doing business in Nigeria, the business environment is at best complex and rather stifling for local and foreign businesses.
Talking about your technology platform, what are the values subscribers can get from it?
REKIT Financial Advisors Limited is an independent corporate investment advisory firm regulated by the Securities and Exchange Commission (SEC) to provide unbiased investment advisory solutions covering wealth management, estate planning and trust, insurance planning, tax planning and corporate business advisory services. With over 150 years of collective industry experience of the promoters, REKIT is well-positioned to redefine the advisory business landscape in Nigeria by continuously offering well-researched investment solutions that are sustainable and ensure that our discerning clients win across economic conditions. We would leverage technology to cater to savers and investors ranging from low income to very high-income earners. Our generic and exclusive solutions ensure that there is a value proposition that best suits the unique spectrum of needs of our retail, high networth and institutional clients. Our multi-currency solutions can be accessed through well-researched and tested opportunities in money market, fixed income, equities, real estate, and commodities. Our team of advisors are available to handhold our clients through the realisation of their ambitions. We will be launching our web and mobile applications soon. These will enhance the REKIT experience of unparalleled insights for making informed and far-reaching investment decisions.