Investment sentiments appear stimulated through the first 

half of 2021 on the back of sustained crude oil rally. Oil price has moved over 40 per cent higher this year.

Consequently, Pension Fund Administrators, PFAs’ investment in the equities market has risen 70.4 percent to N830.6 billion between January and April this year. This is against N488.5 billion recorded in the preceding  four months period of 2020.

PFA’s constitute the leading group of institutional investors in Nigeria’s financial market, determining the direction and size of domestic portfolio investment flows.

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Also, renewed interest in Federal Government securities occasioned by increased yields from fixed income securities in recent times has led to the rise in the demand for government securities by 18.7 per cent to N8.3 trillion in the  four months period ended April 2021 from N7.0 trillion in April 2020.

Meanwhile, analysts and market operators have opined that the increased investment appetite for equities may not be sustained in the second half of 2021 given the improved yield in fixed income securities.

PFAs investments

Financial Vanguard’s  findings from the latest report released by the Nigeria Pension Commission, PenCom, revealed that the share of equities holdings to the total pension fund assets grew by 6.7 per cent in April 2021 from 4.6 per cent in April 2020, just as share of Federal Government securities to total pension funds grew to 67 per cent in April 2021from 66.2 per cent in April 2020.

Operators /Analysts comments

Reacting to the development in the investments in equities and Federal Government securities, analysts and Head of Research and Investment at Fidelity Securities Limited, FSL , Mr Victor Chiazor said: “Over the years, PFA investments have always been highly skewed towards FGN Securities given the low risk nature of the instrument.

“However, 2020 saw a slight shift in PFA investments from FGN securities to the equities market on the back of the low yield money market environment. With yields at ridiculously low levels and investments in FGN securities offering a negative real return given the high inflation rate, more PFA investments were moved to the equities market with investments targeted at stocks with high dividend yields.

“This shift in search of higher yields was responsible for the 70.4 per cent rise in PFA investments in equities for the first quarter of the year.”

Projecting the second quarter 2021, he said: “We have, however, seen a significant rise in the yield environment in the first quarter of the year, which we expect may trigger capital flows away from the equities market back to FGN securities.    

“Hence we may not see that much investment in equities by the PFAs in the second quarter of 2021. The regulators would have to provide incentives to attract more capital flows towards the equities market especially if the yield environment remains high, as investors would remain attracted to the high returns and low risk profile of FGN securities when compared to investments in a volatile equities market.”

Commenting, analysts and Vice Executive Chairman, HIGH CAP Securities Limited, Mr David Adonri, said: “In the second half of 2020, yield on fixed income securities and bank fixed deposits fell drastically. As a result, PFAs were discouraged from investing in debt.

“However, there has been recovery in the fixed income space since the first four months of 2021. Several FGN new debt issues at higher interest rate and increase of yield in the secondary market have attracted PFAs back to the fixed income space, leading to the increase of their investment in debt instruments.

“Due to the overriding need for preservation of capital, debt has always been the preferred instrument for investment by PFAs.

“Due to the expansionary monetary policy of CBN and NESP 2020, formulated by FGN to force the economy out of recession, the equities market became very attractive. That caused the massive migration of financial assets to equities spearheaded by PFAs.

“Hitherto, PFAs deployed their assets far below regulatory ceiling to equities but the enticing opportunity to maximize income from the soaring equities market, made them to realign their portfolios with higher weight to equities. Equities Market enabled the investment of PFAs to grow massively as a result of the gains which were sustained up to the first four months of 2021.”

While projecting the future, Adonri said: “It is not likely that equities can generate the kind of unprecedented returns that occurred between H2, 2020 and first four months of 2021. The radical factor that propelled that abnormal situation cannot be replicated any more in 2021.

“Equities market can only generate normal returns this year because it’s fortune will rest on vagaries of economic fundamentals. There will be shift to the primary market for debt as interest rate is likely to rise for new public debt issues, as FGN pursue a ferocious program of local debt finance.  

On incentives to boost the market, he said: “CBN is the only regulator whose monetary and pseudo fiscal policies can impact the macro economy. If macroeconomic conditions are good, the capital market will generally be attractive.

“Having subdued recession, macroeconomic policies may be devoted to combating inflation. If restrictive, the equities market may be stifled. From indications, it will not be surprising if more PFA assets are reallocated to fixed income securities in 2021 to re-establish the integrity of their portfolios.”

Commenting as well, Uche Uwaleke, Professor of Capital Market at the Nasarawa State University Keffi, said: “The increase in investment in FGN Securities as well as in equities reflects growth in size of pension funds. Bear in mind that Pension Funds are meant to be invested within the ambit of permissible investments stipulated in the Pension Act.

“Against the backdrop of the risk-based approach, it is not surprising that the bulk of the about N12 trillion pension assets, (over N8 trillion) are invested in FGN Securities considered risk-free and this have come more from Fund II and Fund III categories.

“Due to the risks associated with equities investments, the Pension Act has placed a limit on the amount of pension funds that can be invested in ordinary shares. This is why it accounts for less than N1 trillion in the Portfolio.

“If PFAs have increased their appetite for equities, it means that they have reason to believe that the market is undervalued and are therefore taking advantage of the potential market upside given that they take a longer term perspective of the market unlike retail investors.”

While projecting the future, Uwaleke said: “For the positive market sentiment to be sustained, it behoves the government to ensure macroeconomic stability while regulators remain alive to their responsibilities of protecting investors’ interest.”

In his own comment, analysts and Managing Director of APT Securities & Funds Limited, Mallam Garba Kurfi said: “The upward movement in investment in the FGN Bonds was as a result of rise in the returns or interest rates.    At the beginning of the year most of the fixed income securities crashed especially Treasury Bills, TBs, which crashed to 1 per cent but today 360days is going for 9 per cent and FG Bond has risen up to 13 per cent from less than 7 per cent. These are the reasons for increase in investment in FG Bonds and TBs.

“In the case of equities, last quarter of 2020 equities gained more than 50 per cent while some individual stocks gain as much as 100 per cent in three month or more than that. That is what attracted PFAs interest into equities.”

Projecting the future for 2021, he said: “For the FGN Bonds the increase is likely to continue but for equities I am not very sure of the upward movement of the equities’ investment.”


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