Pension Funds Administrators (PFAs) expanded their investments in less risky asset class, mainly Federal Government securities, in the first quarter of 2023, Q1’23, amidst fears of uncertainty associated with the last 2023 general election coupled with low yield in equities market.
Government securities are associated with less risk as they are secured by the Central Bank of Nigeria, CBN, but the return is aligned with the apex bank’s benchmark interest rate, Monetary Policy Rate, MPR.
In the contrary equity investment window, though has higher returns potentials, is considered more risky as its performance is determined by market sentiments on many endogenous and exogenous economic factors.
Vanguard’s findings from the latest data released by National Pension Commission, (PenCom) shows that the PFAs’ investments in Federal Government Securities went up Year-on-Year, YoY, by a huge 19.9% to N10.2 trillion in Q1’23 from N8.5 trillion in the corresponding period of 2022.
Though PFAs’ interest in equities which has high risk trended up also during Q1’23 but at slower rate of 9.6 percent to N1.2 trillion, against the N1.1 trillion recorded in the corresponding period of 2022.
However, PFAs investment in state government securities went down slightly by 5.0 percent to N162.2 billion YoY as against N171.6 billion in 2022.
Commenting on this development, analyst and Executive Vice Chairman, Highcap Securities Limited, David Adonri, said: “The greater investment in FGN Bond were attributed to fears by the PFAs with regards to the uncertainties around the 2023 general election. Statistics of the past had shown that during general elections in Nigeria, the equities market suffer most because of uncertainties in the political space.
“The rise in PFA investment in government bonds is also attributable to safety and interest rate in fixed income. Attention of institutional investors also shifted to debt where FGN was active. “Perhaps also, PFAs were reducing their exposure to equities, following rate hike by the CBN. With the recent rate hike by CBN and fragile global economy, the possibility is high that financial assets will generally migrate to the safety of debt”.
In his own reaction, the Chief Executive Officer, APT Securities & Funds Limited, Mallam Garba, said: “PFAs reduced their investment in equities due to profit taking. Also you know that equities investment has higher risk than fixed income investment. So PFAs may have reduced investment in equities for fear and uncertainty of the last general election.
“Furthermore, the rise in MPR from 11.50 per cent to 14 percent during the period under review, also attracted many of the investments to fixed income instruments.
“However, after the election, the equities prices started attracting more investments especially as the inflation rate keep going up which will make investment in fixed income yield negative returns.”
SOURCE: VANGUARD
