Pension Funds ditch stocks for FGN Bonds and Bank Placements

Nigeria’s stock market has witnessed recurring bearish trade performance this year, with the All-share index recording a decline of 5% year to date, due to large sell-offs from blue chip stocks on the exchange bourse.

According to a stockbroker, “Pension funds are no longer buying and there are no foreign portfolio investors, so the market is basically dead,” suggesting that the lack of institutional investor participation like Pension funds is affecting stock market performances. The data also confirms the suspicion.  

According to the pension funds industry portfolio report, it appears Nigerian Pension Funds’ investments in Nigerian equities have declined by N27.84 billion between January and April 2021. A possible reason why equities have been negatively affected. 

As of 31st December 2020, Pension Fund investment in domestic equities stood at N858.46 billion, which dropped to N830.62 billion by April 2020. This represents a 3.2% decline in the space of four months. In contrast, Pension Funds have increased their purchase of government securities and investment in bank placements. 

While allocation to equities somewhat decreased, allocation to bank placements increased to N1.64 trillion from N1.53 trillion. Allocation to FGN Bonds also increased from N7.3 trillion to N7.45 trillion. Bear in mind that total Pension Fund Assets as of April 2021 was N12.39 trillion compared to N12.30 trillion as of December 2020. 

According to one analyst who spoke during Nairametrics “OneTheMoney” Twitter spaces show last Saturday, Pension Funds are being wooed by banks to place funds in fixed deposits that promises as high as 15% per annum. As CBN continues to debit banks via its CRR policy, some banks have resorted to Pension funds to shore up their deposits and avoid borrowing short-term funds via the CBN’s punitive Standard Lending Facility window.