PFAs Exposure to Stock Market Hits N856.16bn on Scramble for Fundamental Stocks

Kayode Tokede

Following the drive to position in some fundamentals stocks with low prices, Pension Fund Administration (PFAs) exposure to the Nigerian equities market increased to N856.16billion in November from N828.17 billion reported by National Pension Commission (NPC) in October 2022.

This represents N22.99 billion or 3.38 per cent Month-on-Month (MoM) increase.

The PFAs portfolio in the stock market contributed 5.8 per cent to the N14.79 trillion current net asset value in the month under review, this is according to the latest NPC report on pension funds industry portfolio for the month of November reviewed.

The commission in its November 2022 report also revealed that PFAs exposure in Treasury Bills added N9.92 billion or 5.3 per cent to N197.14billion in November 2022 from N187.22billion reported in October.

The PFAs impact was felt in stock market November 2022 as the market capitalisation appreciated by N2.08 trillion as investors renewed interest in large and medium capitalised stocks.

The stock market performance in November was driven by PFAs and domestic investors’ surge in interest in Dangote Cement, Airtel Africa Plc, among other highly capitalised stocks on the bourse.

For instance, Dangote Cement Plc saw its price gaining 18.96 per cent to close November trading at N262.30 per share from N220.5 per share it opened for trading, while MTN Nigeria Communications gained 10.97 per cent to close at N218.5 per share from N196.90 per share.

Airtel Africa had rose by 13.7 per cent to N1,450.00 per share from N1,275.00 per share as Zenith Bank added N1.9per share to close at N21.9 per share from N20.00 per share it closed for trading in October 2022.

Analysts believe the PFAs and investors reacted sharply to four quick successions in Monetary Policy Rate (MPR) hike by the Central Bank of Nigeria (CBN); 13 per cent in May; 14 per cent in July;  15.5 per cent in September, and 16.5 per cent in November 2022 but lower pricing boost renewed interest towards the end of last year.

Responding to PFAs exposure in the equities market, the Managing Director, Morgan Capital Securities Limited, Mr. Rotimi Olubi explained to THISDAY that low pricing of some fundamental stocks and portfolio rebalancing contributed to PFAs renewed interest in stocks.

He said, “The PFAs do not take trade in the stocks with speculative report 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, Mr. 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 year-end rally by investors, as some companies begin to show strong earnings’ prospects ahead of full year results.”

The vice president, Highcap Securities, Mr. David Adonri acknowledged the PFAs’ role in lifting the stock 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 Debt Management Office (DMO) including Sukuk and FGN Bonds.”

Additionally, the report disclosed that PFAs exposure in FGN Securities rose sharply by 2.25 per cent to N9.43trillion in November from N9.23 trillion in October.

PFAs has continued to benefit from the federal government borrowing to bridge 2022 budget financing.

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 50per 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.”

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