* Political risk, responsible growing interest – Experts
By Nkiruka Nnorom
Pension fund investments in domestic stocks fell to 873.49 billion naira in the nine months ended September 30, 2021 due to rising interest rates in the fixed income market and the uncertainty surrounding the next general election.
This represents a decrease of 5.04% year-to-date (YtD) from the 919.85 billion naira invested at the start of the year and represented 6.7% of the total investment of fund administrators. pension (PFA) during the period.
Data on the engagement of PFAs in the national equity market for the nine-month period showed that the total assets of PFAs amounted to 13,001 billion naira.
However, PFAs increased their participation in foreign stocks during the same period.
Specifically, the commitment of pension funds to foreign common stocks rose 18.3 percent to 105.2 billion naira from 88.9 billion naira in January. On an annual basis, the figure increased 37.6% from 76.46 billion naira during the corresponding period in 2020.
Investment experts attributed the decline in PFA exposure in local stocks to political risk and rising interest rates on fixed income, among others.
Mallam Garba Kurfi, Managing Director / CEO of APT Securities and Funds, said: âThe decline in PFA investments in equities is due to the growing interest in fixed income bonds. The interest rate on FGN sukuk IV is 12.80%, while it is 11.20% for FGN sukuk 111.
âThe fall in the prices of certain national stocks has led to a decrease in their investments. For example, Lafarge Africa was trading for such a high amount of N 31.00 per share in January compared to N 24.00 so far, as were GTCO, PZ Cusson and Unilever among others.
On the other hand, PFAs have increased their investment in foreign stocks to protect against the devaluation of the naira, as the returns are realized in US dollars. “
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Also commenting, Olubi Rotimi Omotayo, Managing Director / CEO of Morgan Capital Securities, attributed the decline in PFA’s exposure to local stocks to the uncertainty surrounding the upcoming election, the general market lull as well as uncertainty about a possible future devaluation of the naira.
âThe five percent decline could be the result of the decline in the value of the shares over the nine-month period. The market is down; which also led to a drop in the valuation of their investment in local equities. So, in that sense, we cannot say that they have reduced their allocation to the equity market. This may be due to the decline in stock prices over the past nine months.
âThis gap can also be narrowed through portfolio rebalancing, but one of the things preventing ATP rebalancing is the political risk associated with the upcoming general election in 2022. Equities could likely fall a bit more following the election. . Thus, instead of betting more money to consolidate their position, the AFPs could decide to hold out until after the elections, âhe said.
On increasing the exposure of PFAs to foreign securities, Omotayo explained that PFAs have invested in foreign securities to hedge against the downside risk of the naira. âThe naira has been devalued twice in a row lately. Thus, PFAs invest in foreign securities due to the constant depletion and devaluation of the naira with the aim of earning a return in foreign currency.
Offshore pension fund investments have increased, while the national decline first appeared on Vanguard News.