BY PETER EGWUATU

Head, Equity Research, FBN Capital, Mr. Bunmi Asaolu has said that the Pension Fund Administrators (PFAs) are extremely conservative in their investment style, a development which has negatively impacted on the Nigerian capital market.

He stated this at the Finance Correspondence Association of Nigeria (FICAN) Round Table on the economy with the theme “ The Economy in the first half of 2012 and outlook for second half of 2012” held in Lagos said that PFAs are supposed to be flexible in their investment style as most of them currently invest in fixed income.

According to him, “Our view at the start of the year was though yields are attractive on fixed income instruments, we do not expect this broad asset class to become more attractive given our view that monetary policy rates have peaked and that global economic trends may potentially lead to a loosening stance by the Central Bank of Nigeria (CBN).”

He stressed that the average return Year to Date (YTD) of the most liquid FGN bonds has been close to zero (underperforming equities).

“Even after adjusting for coupons, equities market is still ahead. Yields on T-Bills have averaged 15 per cent over the last six months but have trended down from 18 per cent to 14 per cent due to growing demand. Nigeria has become a yield story and offshore foreign investors have just found it difficult to ignore the market” he noted.

While commenting on Nigerian economy, he said, “Growth still healthy but fell below 7 per cent for the first time in at least 11 quarters in first quarter of 2012.  Slowdown in oil Gross Domestic Product (GDP) growth through 2011 and into 2012.

“First quarter 2012 oil GDP growth was 2.3 per cent year on year; delays in passage of  Petroleum Industry Bill (PIB) has meant that the gap between Nigeria and other African oil producers has narrowed significantly.

Single digit range
“Some weakness also in non-oil growth but still in the high single-digit range. Decline in oil production, recent weakness in oil prices and increasing demand for imports combined to create a perfect storm.”

He further bemoaned Nigeria’s appetite for imports, saying “Many of the imported goods could be produced locally, from food items such as sugar to refined petroleum products.

“Import bill measured in fuel subsidy terms running out of control at the end of 2011; focus on the downstream oil (imports) sector and a 50% reduction in subsidy provided some breathing space in Q1 but the demand appears to be increasing again. Reduction in fuel subsidies and hike in electricity tariffs in June have combined to push inflation above 14%.”

Asaolu, noted that Monetary Policy Committee (MPC’s)  preference for positive real returns on FGN bonds (and a stable naira) have left the committee with no choice but to keep rates unchanged (high) and adopt more tightening measures. “These moves continue to support the T-bills market but are squeezing out the private sector” he added.