Market News

The holding of US dollars has proven to be an effective hedge against the depreciation of the naira, according to Ayodeji Ebo, an investment professional and managing director/CBO at Optimus by Afrinvest.

Speaking during his business and investment tips program titled “Performances of Asset Classes in 2024 & Expectations for 2025,” Ebo highlighted the significant benefits investors with dollar-denominated assets enjoyed in 2024 as the naira witnessed notable depreciation across both official and parallel markets.

Ebo explained that in 2024, the naira opened the year trading at N907.11/$1 and N1,205.00/$1 in the official and parallel markets, respectively. By year-end, it had depreciated to N1,538.00/$1 and N1,645.00/$1 in the respective markets, translating to depreciation rates of 41 percent and 27 percent. For investors holding dollar assets, the naira’s depreciation alone provided returns of 69 percent, even before factoring in potential returns from dollar-denominated investments such as mutual funds, fixed deposits, and US stocks. “This underscores why holding a strong foreign currency like the dollar can serve as an effective hedge against currency risk,” Ebo said.

Looking ahead to 2025, Ebo projected less dramatic depreciation for the naira, estimating it would decline by 14 percent and 17 percent in the official and parallel markets, potentially reaching N1,800/$1 and N1,980/$1, respectively. However, he stressed that this projection hinged on the Central Bank of Nigeria (CBN) improving the supply of foreign exchange. “A sustainable FX supply mechanism is crucial to avoid exceeding these thresholds and ensuring market stability,” he said.

Reflecting on the broader investment landscape, Ebo provided insights into various asset classes. Nigerian stocks, for instance, delivered remarkable returns in 2024, with the Nigerian Exchange All Share Index achieving a 38 percent return. Sector-specific gains included a 160 percent surge in the Oil & Gas sector, 123 percent in Insurance, 54 percent in Consumer Goods, 20 percent in Banking, and 32 percent in Industrials. While 2025 is expected to see continued positive performance, Ebo noted that dividend yields in the stock market remain less attractive compared to fixed-income instruments. He highlighted sectors such as Telecommunications, Insurance, and Agriculture as key areas to watch due to potential tariff reviews, recapitalisation prospects, and strong demand for agricultural products.

Turning to international markets, Ebo pointed out that US stocks maintained a strong performance in 2024, buoyed by a rate cut in the third quarter. The S&P 500, Nasdaq, Dow Jones, and Russell 2000 indices returned 26 percent, 35 percent, 14 percent, and 16 percent, respectively. “For Nigerian investors, these figures were further bolstered by the naira’s depreciation,” he noted. Ebo predicted even stronger performance for US equities in 2025, driven by anticipated interest rate cuts and policy initiatives like Donald Trump’s “America First” agenda, which could enhance corporate earnings.

In the realm of digital assets, cryptocurrencies like Bitcoin and Ethereum delivered stellar returns of 122 percent and 58 percent, respectively, in 2024. Ebo attributed this to the growing global adoption and regulation of digital currencies. He also pointed out that the Trump administration’s favorable stance toward cryptocurrency could drive further growth in 2025. “This remains a high-risk but high-reward avenue for investors with the appetite for volatility,” he cautioned.

Gold, a traditional safe-haven asset, also had a strong year, with the SPDR Gold Trust posting a 28 percent return. Ebo predicted continued positive performance in 2025 as investors seek alternative investment classes amid economic uncertainties. Similarly, the real estate sector showed resilience in 2024, recording 5.4 percent growth in the third quarter, driven by the demand for affordable housing. Despite challenges like naira depreciation and rising borrowing costs, Ebo believes the sector will remain a viable hedge against inflation in 2025, especially given Nigeria’s significant housing deficit.

Discussing foreign fixed-income securities, Ebo noted that 2024 saw limited appreciation in these instruments due to delayed interest rate cuts. However, he projected gains in 2025 as further rate reductions are expected to drive price increases. “Investors in this space should remain patient, as the macroeconomic environment is poised to turn more favorable,” he advised.

Concluding his analysis, Ebo emphasised the importance of a diversified portfolio in navigating the complexities of 2025. “Your investment objectives, risk appetite, and time horizon should guide your asset allocation decisions. Consulting with a financial adviser is key to optimizing your portfolio and maximizing returns,” he said.

Ebo’s insights underscore the dynamic nature of the global and domestic investment landscape, offering a roadmap for investors looking to hedge risks and seize opportunities in the coming year.