Stagflation & Recession Risk: Strategy for Navigating the New Normal

The world economy is getting hammered on all sides.

With the war in Ukraine, lockdowns in China, supply-chain disruptions, and rising interest rates weighing on global growth, we might be on the brink of stagflation and a possible recession.

What does this mean for investors, and how can you prepare your portfolio to ride the tide?

In the July edition of The Investment Playbook, our investment advisers answered these pertinent questions and more by sharing strategies for navigating the new normal.

For those unfamiliar with the term Recession, it means a significant decline in economic activity that lasts for months or even years. In macroeconomics, recessions are officially recognised after two consecutive quarters of negative GDP growth rates.

Stagflation, on the other hand, is a mash-up term combining the words stagflation and inflation. It describes a malfunctioning economy, in which prices keep soaring and higher unemployment while economic growth slumps.

In our usual fashion, participants had the chance to seek clarity on grey areas. Here are some questions and answers from the webinar.

Q1. What advice would you give an infant investor or an intending investor in all these?

Following recent market volatility, we advise infant investors to use our mutual funds to help them through these turbulent times.

Q2. Can you share some Dollar dominated Fixed income investments?

Afrinvest Asset Management Limited currently has 2 dollar-denominated flagship products.

The first is the Afrinvest Dollar fund, a mutual fund that invests in dollar-denominated products. The Fund’s goal is to generate income and capital appreciation for investors with dollars in the short to medium term. You can sign up with a minimum of $1,000.

The Afrinvest Income Portfolio (Dollar), on the other hand, is a guaranteed income fund that strives to preserve clients’ cash while providing a consistent return on investment. It insures investors’ principal and delivers an attractive return in exchange for a contract that locks in funds for a set length of time. The principal and interest are paid at the end of the tenor. The minimum investment amount is $25,000, with a 30-day minimum term.

Q3. What is Afrinvest Plutus Fund?

The Afrinvest Plutus Fund is a money market fund that invests in quality money market instruments. It seeks to achieve both stable income generation and capital preservation by investing 100% of its portfolio assets in high-quality short-term securities rated “BBB” or above. The fund’s risk profile is low as it provides capital safety and a steady stream of quarterly dividends to its subscribers. You can subscribe with as little as N5,000.

Q4. Nigeria is servicing a debt portfolio with about 90 to 100% of its revenue. If that is the case, how is Nigeria able to pay salaries, meet up its operational expenditures and still meet up the wasteful lifestyles of the political class? How sustainable is that strategy in the long run?

The issue of sustainable debt servicing will always hinge on the country’s ability to generate sufficient revenue to meet its debt obligations. Given the country’s reliance on crude oil export revenue, the country must expand its diversification program while reducing costs through efficient fiscal planning and implementation.

Q5. What is the advantage of playing in the market directly with 200k USD over playing in Nigeria?

Investing directly in the Eurobond market with a minimum face value of $200,000 allows you to benefit from both the risk and return connected with the specific instrument purchased. To diversify your risk, you can purchase either the ADF or AIP Dollar investment, which can be invested in a variety of instruments and provides the benefit of portfolio diversification.

Q6. What is the best investment option given the down outlook for the second half of the year?

We recommend that you implement our suggested weightings. However, before going with any investment option, due diligence must be performed.

Q7. Why did you give equities just 10 per cent despite the Nigeria market performance this year?

We know that the Nigerian market performed well in the first half of the year. However, we recognize that periods of higher fixed-income yields hurt the equity market. As a result, we recommend a reduced exposure to this asset class as we prepare for higher yields in the coming quarter.

That’s a wrap! The full webinar recording is available on YouTube.

Remember, our goal is to simplify investments for you. A visit to our website will show you how we can help you reach your financial goals.

Till the next edition of The Investment Playbook, keep investing!