The Pension Fund Administration (PFA) exposure in the equities market, and FGN Bond dropped by N174.5billion in September to N12.23trillion from N12.40trillion.
This was disclosed by the National Pension Commission in its September 2023 pension funds industry portfolio report.
The industry’s current net asset value stood at N17.35 trillion as of September 2023 from N14.99 trillion as of December 2022.
In the period under review, PFA exposure in the equities market dropped by N23.77billion to N1.39trillion as of September from N1.41trillion reported in August 2023, while exposure in FGN bonds stood at N10.84 trillion as of September 2023, a decline of N150.69billion as of August 2023 when it was at N10.99trillion.
Analysts noted that the PFAs and investors reacted sharply to the naira depreciation in the foreign exchange market, double-digit inflation rate, coupled with the Central Bank of Nigeria (CBN)’s 18.75 percent Monetary Policy Rate (MPR) currently at 18.75 percent.
PFAs this year have taken positions in the equities market’s fundamental equities, amid impressive corporate earnings and interim dividend payouts to shareholders.
Responding to PFAs exposure in the equities market, the Managing Director, Morgan Capital Securities Limited, Rotimi Olubi explained to InsideBusinessNG that low pricing of some fundamental stocks and portfolio rebalancing contributed to PFAs renewed interest in stocks.
He said, “The PFAs do not take trades in stocks with speculative reports as they trade long-term. Attractive revaluation led to PFAs renewed exposure in the stock market in November 2022.”
The CEO, Wyoming Capital and Partners, Tajudeen Olayinka explained that PFAs and investors reacted to low prices of some fundamental stocks on the Exchange.
According to him, “Prices had become too low to resist, and this happened because of prolonged repricing of securities across markets and instruments, pushing down stock prices below the levels they should ordinarily be.
“It also demonstrates improved earning capacities of some listed companies, as they continue to adjust to variability of costs and cost pressures in the short run, in order to stay afloat. Another factor is the usual positioning and repositioning for the year-end rally by investors, as some companies begin to show strong earnings prospects ahead of full year results.”
The vice president, of Highcap Securities, David Adonri acknowledged the PFAs’ role in lifting the equities market, stressing that some high-network investors opted to invest in the stock market.
According to him, “The only thing that drove the stock market performance for the month of November was the effect of CBN’s redesigning of the Naira. Otherwise, most of the economic factors were negative against the stock market. One can suspect some rich investors have channelled their funds through the stock market to beat CBN’s policy.
“The macro economy is in total disarray considering a hike in inflation, flood disasters, and tension towards 2023 general elections. Also, in November, there were many debt offers by the Debt Management Office (DMO) including Sukuk and FGN Bonds.”
Analysts at Vetiva research in a report titled, “Nigeria H2 2022 outlook: A strange labyrinth”, had said the government expected to increase borrowings, and the global economy tightening over the Russia-Ukraine war is to drive FBN bonds rates higher.
According to the report, “Although headline inflation rose 22basis m/m to 15.92per cent y/y in April 2022, inflation is expected to fall in H2 2022. Additionally, we expect to see increased government borrowings in the same period as the FGN gears up for the 2023 Presidential Elections.
“This should lead to an improvement in liquidity in the fixed income space, following an easing of monthly maturities, eased from N893.2 billion in Q1 2022 to c.N354.3 billion in Q2 2022.
“The latest bond offer calendar for Q2 2022 shows that the government is expected to increase its borrowings by 50 per cent, and barring an improvement in oil revenue, we expect the government to borrow aggressively in H2 2022 as it seeks to meet its financing needs.
“The expansion of the budget deficit by N965 billion should further boost liquidity in the bonds space, as the country is expected to tap the domestic market to fill the gap.
“Given that the government expects to tap the domestic market to meet its funding needs as well as raise capital for its infrastructure projects ahead of the 2023 elections, we expect this to result in an uptick in yields.
“Furthermore, the tightening of monetary conditions around the world will add further pressure on policymakers to raise rates, in a bid to retain foreign investors in the bonds market.”