After an 8.52 percent growth in the equities market at the end of the first quarter of 2023 compared to the last quarter of 2022, Pension Fund Administrators (PFAs) have sustained their interest in stocks, although much lower than their statutory limit.
From N983.85 billion investment in ordinary shares in January 2023 and N1.069 trillion in February, the PFAs have moved on with trillion-naira worth of stocks month-on-month to May, closing at N1.123 trillion.
However, Federal Government’s securities remain safe haven for the PFAs who have prioritised safety of contributor’s funds in choosing where to invest.
From N9.484 trillion investment in FGN securities in January 2023, the industry has sustained confidence in the instruments, particularly bonds, moving it to N10.197 trillion in March, N10.127 trillion in April and N10.45 trillion in May.
Jerome Opadokun, an analyst with one of the PFAs, said the stock market rally is driven by factors that may not be sustainable in the long term because FX pressure continues to rise, with inflationary trend and subsidy removal affecting spending in the economy.
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He cautioned that there is a need for fund managers to change their liability structure to justify these high returns, noting that the industry is going through a change process and it is important to manage the process and expectations of contributors.
The National Pension Commission, in its first quarter 2023 market review, said activities on the Nigerian stock market witnessed an improvement in Q1 2023 as the All Share Index (ASI) and market capitalisation of the Nigerian Exchange Limited (NGX) closed at 54,232.34 points and N29.54 trillion, compared to 51,251.06 points and N27.92 trillion in Q4 2022, indicating a gain of 5.82 percent and 5.80 percent, respectively.
According to the commission, the capital market exhibited resilience as the average yield on 10-year government bonds increased slightly from 13.82 percent in December 2022 to 14.31 percent in March 2023.
Similarly, the equity market recorded a general appreciation in the prices of stocks with the ASI further appreciating by 5.82 percent during the period compared with an appreciation of 4.54 percent in fourth quarter 2022.
Pension funds are expected to increase as the current higher yields on investment in fixed income securities would raise nominal returns, according to the commission.
“The equity market also provides opportunities for PFAs to take strategic positions in sound but undervalued stocks for long term benefit,” it said.
Muyiwa Oni, regional head of research at Standard Bank Group, while speaking about the equities market during a Pension Fund Operators’ webinar, said the NGX over the last 10 years has performed relatively well in domestic value terms, returning 200 percent over the last 10 years.
According to him, performance over the last year has been carried by brewers and the oil and gas sector, and the NGX is also having a good 2023, growing 4.4 percent this year and earnings will be driven by banks taking advantage of the high-interest environment.
“We propose an overweight recommendation for cements and banks. We expect elevated prices to drive earnings for cement names. We expect the higher interest rate environment to drive higher net interest margins and earnings for banks as yields on government securities and customer loans increase,” he said.
As of May 2023, total pension assets managed by PFAs stood at N15.772 trillion, with 9.995 million retirement savings Account contributors.
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