• Thursday, March 28, 2024
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BusinessDay

PFAs increase stake in FG securities, cut equities over bear dominance

Pension Fund

With bearish state of the Nigerian stock market since the last half of 2018 reflected in declining broad market index and capitalisation, pension fund investments have found more comfort in Federal Government securities increasing stake month on month.

A breakdown of pension industry portfolio as at November 2018 indicates that the pension fund assets were mainly invested in Federal Government securities, with an allocation of 72.5 percent of the total pension assets standing at N8.499 trillion.

The breakdown shows FGN bonds at 52.23 percent; treasury bills, 19.82 percent; agency bonds, 0.11 percent; Sukuk bonds, 0.28 percent; and green bonds, 0.05 percent.

The analysis shows that pension investment in Federal Government securities rose from N5.77 trillion in August 2018, equal to 70.70 percent of total pension fund assets, to N6.16 trillion equal to 72.50 percent in November 2018, indicating an increase of N390 billion, equal to 6.76 percent.

This is as investment in equities dropped from N630.25 billion in August 2018, equal to 7.56 percent of total pension fund assets, to N584.32 billion in November, equal to 6.87 percent, indicating a drop of N45 billion.

As at the end of November 2018, total pension fund assets under management by the PFAs stood at N8.499 trillion. Out of this, Retirement Savings Account (RSA) Fund I contributed N7.32 trillion; RSA Fund II, N3.78 trillion; RSA Fund III, N2.03 trillion; and RSA Fund IV, N658.49 billion.

According to the National Pension Commission (PenCom) in its third quarter 2018 analysis, the Nigerian Capital Market continued its bearish run in the quarter under review from the second quarter 2018, with a negative return of 14.40 percent.

The NSE All Share Index closed at 32,766.37, down from 38,278.55 in the previous quarter. Likewise, the market capitalisation dropped by 6.84 percent during the quarter to close at N22.35 trillion, from N23.99 trillion as at the end of the second quarter of 2018.

The equity market capitalisation closed at N11.97 trillion in the quarter under review. This represented a 13.76 percent decline from N13.88 trillion recorded in the last quarter. In addition, the total volume of stock traded stood at 16.26 billion with a closing total trading value of N205.49 billion.

Umar Sanda Mairam, managing director/CEO, Premium Pensions Limited, in an interview with BusinessDay, however, said no PFA has reduced investments in equities, stating that it will be counterintuitive to PenCom’s minimum requirements that set to distinguish between funds to reduce investments in equities.

What happened, Mairam noted, was that most PFAs tried to meet the minimum exposure to variable income instruments through equities, only for the stock market to start falling off.
“Essentially, foreign investors who were exiting kept selling till November 2018 even as the assets under the management of PFAs kept rising due to fresh inflows and gains through rising interest rates,” he said.

He said these twin events made it appear as if pension funds investments in the equities market reduced.

“Assuming that equity markets did not move at all, it would have still looked like the proportion of equities that PFAs held were dropping,” he said.

On what the investment space will be like over the next few months pre and post elections, the Premium Pension CEO said, “Nothing significant is likely to happen in the next few weeks. Pre-election, post-election events are highly dependent on who wins the elections,” he said.
Mairam said that equities market is not likely to dip further.

“It may remain flat until such a time foreign investors feel it is safe to come back to the market. There will be increased, but also not significant, pressure on exchange rates and a slight increase in interest rates. We will need to keep an eye on oil prices, external reserves and oil production output,” he said.

“The next two quarters post-election will be critical to the GDP direction, but it’s safe to say that slow growth will be the norm. However, the exchange rate may be floated, and/or fuel subsidy cut or reduced.

“There is also a possibility of a hike in electricity tariffs. Reality will hit towards the end of 2019 or early 2020 as inflation spirals with the possibility of the exchange rate rising. If the government sticks with its policies, the economy will rebound strongly in 2021 and beyond, depending on how de-linked the ‘new economy’ is from oil.

“Summary is that regardless of who wins the elections, the next two years are going to be very difficult because of our large dependence on oil and precarious fiscal position,” he said.

 

Modestus Anaesoronye