Inflationary environment is depriving investors of real returns

Investors in the Nigerian equities market saw a roller coaster ride in 2022, with inflation taking the shine off their returns on their holdings.

Though the market looks set to close higher this year, considering its return of 16.36 percent as of December 23 compared to 6.7 percent in 2021, the country’s elevated inflationary environment is depriving investors of real returns.

The headline inflation rate quickened to a 17-year high of 21.47 percent in November from 15.63 percent at the end of last year, according to the National Bureau of Statistics.

Amid improved liquidity and new listings, the record gain in the stock market was driven majorly by domestic institutional and retail investors who reinforced the potential of Nigerian investors in stabilising and growing the market.

High inflation has historical correlation with lower returns on equities. While value stocks tend to perform better than growth stocks in high inflation periods, growth stocks tend to perform better during low inflation.

A combination of new listings and record rally in some stocks helped push the value of listed stocks on the Nigerian Exchange Limited (NGX) up by N4.77 trillion in 2022 to N27.07 trillion. Listed stocks value had closed 2021 at N22.29 trillion.

The NGX All-Share Index rose to 49,706.09 basis points (bps) on December 23.

Notwithstanding the risks to equity market rally in 2022, Nigerian stocks are still attractive and should remain resilient in 2023, according to analysts.