Amid FX Unification, PFAs Exposure in Stock Market Rose by 29.11% in H1

Kayode Tokede

As the Nigerian stock market continued to rally over Central Bank of Nigeria (CBN) policies on foreign exchange, Pension Fund Administration (PFAs) exposure in fundamental stocks increased by 29.11 per cent in the first half of (H1) 2023.  

According to findings by THISDAY, PFAs exposure in domestic stocks closed June 2023 at N1.268 trillion, an increase of 29.11 per cent from N983.09 billion reported by National Pension Commission in January 2023.

In prior year, PFAs exposure in the stock market gained 0.91 per cent to N969.154 billion as of June 30, 2022 from N960.42 billion in January 2022.

The stock market of the Nigerian Exchange Limited (NGX) has continued to appreciate, as foreign and High Network Investors are taking advantage of undervalued stocks amid CBN’s unification of Naira.

The market has gained 26.83 per cent in its Year-till-Date (YtD) performance and reached over 16-year in June 2023 when All-Share Index crossed 60,000 basis points.

With about N16.76 trillion pension funds industry portfolio, PFAs exposure in stocks stood at 7.57 per cent, while FGN securities contributed 64.8 per cent or N10.86 trillion as of June 30, 2023.

Capital market analysts have attributed PFAs exposure in FGN securities to a hike in the Monetary Policy Rate (MPR) of the central bank, stressing that investors are interested in better yield on investment.

The federal government securities include: FGN Bonds, Treasury Bills, Agency Bonds, Sukuk, and Green Bonds.

Data obtained from PENCOM revealed that PFAs exposure in FGN securities hits N10.86trilllion as of June 2023, a 14.5 per cent high when compared to N9.48 trillion in January 2023.

Specifically, PFAs exposure in FGN bonds increased to N10.4t rillion as of June 30, 2023 from N9.09 trillion reported by the commission in January 2023.

Treasury Bills comes second in PFAs exposure in FGN securities, gaining 11.16 per cent to N192.43 billion as of June 30, 2023 from N173.11 billion reported early in 2023.

Since June 2022, the CBN has raised MPR more than four times to 18.5 per cent at its last Monetary Policy Committee (MPC) meeting in a bid to curtail the steady rise in the inflation rate to 22.41   per cent in May 2023.

The MPR is the benchmark for determining the interest rate charged by banks and also influences the yields on fixed-income securities.

The hike in inflation rate, the interest rate on the   Federal Government’s Treasury bills rose to 1.39per cent in January 2023 from 3.87 per cent as of June 2023.

Analysts said PFAs are taking position in FGN securities in a move to beat inflation and invest in securities that are risk-free. 

Speaking with THISDAY, the Vice President, Highcap Securities, Mr. David Adnori stated that PFAs’ investments in FGN securities over the last half year is triggered by high interest rate regime following the increase of the MPR by the CBN to tackle rising inflation.

According to him, “I had foreseen PFAs investment in FGN securities in the H1 2023 to continue to grow but investments in stock market will be based on the yield environment, the performance of the stock market during the year and the corporate performance of listed companies for 2022 financial year.”

On his own part, Managing Director/CEO of APT Securities and Funds Limited, Mr. Garba Kurfi, expressed that,  “The Investment in FGN Bonds by PFAs is necessary because of its availability and risk-free when compared with the other securities.

“Most aged people prefer their money to be invested in less risky assets. There are no available instruments to invest like bonds with high interest rates. There is a need for more financial products that can give alternatives and provide high returns like Bonds in the financial markets in order to attract pension funds investments.”

On PFA exposure in stock market, Adonri recognised the role of PFAs in lifting the stock market in H1 2023, stressing that some high-network investors opted to invest in the fundamental stocks on the bourse.

According to him, “The only thing that drives stock market performance so far in H1 2023 has been the keen interest of PFAs investment in some fundamental stocks and the latest policies by the CBN on foreign exchange have contributed to increasing participation in the stock market.”