Stocks to Buy as Insurance Against Nigeria’s Surging Inflation

Stocks to Buy as Insurance Against Inflation: Investors who made the decision to buy stock in particular companies at the beginning of the year and hold them for the duration will smile knowing that their investments have generated a lot of returns despite the year’s ups and downs.

Considering the gains in the stock market, smart investors may want to consider buying stocks as a hedge against the growing inflation rate, which is now at  20.77% as of September 2022, up from the 20.52% reported in the previous month. It is advised that you take the proper financial security precautions in order to protect your money from this galloping inflation.

READ MORE: Top 5 Investment Ideas in Nigeria

The consumer price index

The consumer price index (CPI), which monitors inflation, rose to 15.60 percent (year over year) in January 2022, per statistics made public by the National Bureau of Statistics (NBS). This is 0.87 percentage points less than the rate that was reported in January 2021 (16.47%).

Graphical View of Nigeria’s inflation rate from 2013 to 2022

Investors’ desire for equity has been further dampened by the Central Bank of Nigeria’s (CBN) decision to raise interest rates by 15.5% as they continue to shift their financial assets away from stock investments and toward money market investments. As the apex bank battles increasing inflation, the MPC (Monetary Policy Committee) agreed to raise interest rates to 15.5%.

In order to address the rising cost of goods and services, the Central Bank (CBN) hiked the interest rate further to 15.5% from the previous MPC meeting’s increase of 11.5% to 14%. However, the inflation rate continued to spike above 20.52% in August. Inflation for September is currently 20.77%.

Affected Parties

Consumers, businesses, and investors are all very worried about the inflation rate as it is. The headline inflation rate of 20.77%, for instance, must be exceeded for positive returns on any investments to be profitable. Furthermore, considering the state of the economy right now, it is difficult to identify investments of this nature that may yield returns on investment above the inflation rate.

However, there are stocks you can purchase as protection against inflation because equities can still be viewed as an avenue where smart investors can stake their money and make a profit, though with just as high a chance of loss. The stock market is exceedingly risky and offers significant returns on investments as a result of its high rate of volatility, But this might be the time to start accumulating stock, this might be the right time to increase your investment portfolio in the stock market.

Reasons to Consider stocks

It is advised that you learn the reasoning behind your decision before you buy stocks in order to safeguard your money from the country’s rising inflation. To put it another way, it is ideal that you are aware of “Why you should consider stocks”

In your financial portfolio, stocks can be a vital component. You may increase your savings, safeguard your assets from inflation and taxation, and increase the return on your investment holdings by purchasing stocks in a number of companies. It’s critical to understand that there are high risks associated with stock market investment, but, the good news is that, they can be minimized!

economically, in economics, it is believed that when interest rates are low, investors switch their money (investment) from money market instruments( from banks most especially) to the stock market in search of a greater yield, just as they do when interest rates are high when they shift from stocks to other asset classes, particularly money market instruments.

Other Reasons

• The stock market will benefit if macroeconomic policy conditions become better and the inflation rate starts to decline since the market will then begin to stabilize.
• Higher interest rates have undoubtedly an effect on the stock market, but investors shouldn’t assume that this means they should give up on the market altogether.
• Instead of staying away from the market after a bearish condition, it might be confident that investors who are in the correct sectors of the economy can still make money. This entails examining some of the industries that have performed well despite the weak overall economy.

Note: Before starting to rise again, as they have in previous years, equities are probably going to decline far more. In order to take advantage of the declining prices of any stock, a sequential strategy to stock investments that are to be considered should involve buying them in parts.

Here are Nigerian stocks to Buy as Insurance Against Inflation

Nigerians can invest their money in these stocks, according to Nairametrics data, for a profitable investment approaching 2023 and as a strategy to protect against the country’s present inflation.

•  Food and pharmaceutical companies

Stocks’ prices will decline as a result of the financial assets investments moving away from the equity market and toward the money market or fixed-income instruments as interest rates rise. It is a chance to invest in stocks.
Stocks in industries with elastic demand( a change in demand as a result of a change in price or income)  such as consumer goods and banking are probably kept on hand for interest rate spikes.

Investors should buy shares of food and drug manufacturing companies such as BUA Foods Plc, GSK Plc, Neimeth Pharmaceuticals Plc, Okomu Oil Plc, Presco Plc, and May & Baker Plc.

• Banking sector

The banking industry is always a real focus, especially at this time of rising inflation and interest rates. The majority of these well-established businesses that have experienced such steep declines as investors shifted to fixed-income securities offer investors investment possibilities since they are likely to rebound when the economy adjusts.

As an example, the financial stocks that have dropped so low are probably going to recover quickly after the economy has been adjusted. Investments should be made in banks like Zenith Bank Plc, UBA Plc, GTCO Plc, Access Bank Plc, Fidelity Bank Plc, and Stanbic IBTC. Additionally likely to profit from inflation are oil and gas stocks.

Top Nigerian stocks to Buy as Insurance Against Inflation

1. Airtel Africa
2. Guaranty Trust Holding
3. MTN Nigeria
4. Lafarge Africa
5. Zenith Bank
6. Fidelity bank
7. FBN Holdings
8. Access Holdings
9. UBA
10. Cadbury Nig
11. Presco
12. Total Nig
13. Dangote Sugar
14. Okomu Oil Palm
15. Nestle Nigeria