On the back of a sustained crude oil rally, investment sentiment appears to be boosted through the first half of 2021. This year, the price of oil has risen by more than 40%. As a result, PFAs’ investment in the equities market increased 70.4 percent to N830.6 billion between January and April of this year compared to N488.5 billion in the preceding four months of 2020.
PFAs are the most influential institutional investors in Nigeria’s financial market, influencing the direction and size of domestic portfolio investment flows.
Furthermore, renewed interest in Federal Government securities prompted by recent increases in fixed income yields has resulted in an 18.7 percent increase in demand for government securities to N8.3 trillion in the four months ended April 2021, up from N7.0 trillion in April 2020.
Meanwhile, analysts and market participants believe that the improved yield in fixed income securities will cause the increased investment appetite for equities to fade in the second half of 2021.
Mr Victor Chiazor, analyst and Head of Research and Investment at Fidelity Securities Limited, commented on the development in investments in equities and FGN securities, saying, “Over the years, PFA investments have always been highly skewed towards FGN Securities given the low-risk nature of the instrument.”
However, due to the low yield environment in the money market, PFA investments shifted slightly from FGN securities to the equities market in 2020. With yields at ridiculously low levels and investments in FGN securities providing a negative real return due to the high inflation rate, more PFA investments were transferred to the equities market.
Mallam Garba Kurfi, analyst and Managing Director of APT Securities & Funds Limited, stated: “The upward movement in investment in the FGN Bonds was due to a rise in the returns or interest rates.” Most fixed income securities crashed at the start of the year, particularly Treasury Bills, which fell to 1%, but today 360 days are trading at 9%, and FG Bonds have risen to 13% from less than 7%. These are the reasons for an increase in FG Bond and TB investment.
“In the case of equities, the last quarter of 2020 equities gained more than 50%, while some individual stocks gained 100% or more in three months or less. That is what piqued the interest of PFAs in equities.”
In terms of projections for 2021, he stated, “For the FGN Bonds, the increase is likely to continue, but for equities, I am not very confident of the upward movement of equities’ investments.”