In the light of rising interest rates and the uncertainty surrounding the impending general elections in 2023, Nigeria’s largest investment body, Pension Fund Administrators (PFAs) are now increasing their holdings of corporate bonds.
According to the most recent data from the National Pension Commission (PenCom), PFA investments in corporate fixed-income securities increased year over year by 41.1% to N1.371 trillion in the seven months that ended in July 2022 from N957.7 billion in the same period in 2021.
The report also reveals a sluggish increase in PFAs’ interest in stocks, up barely 5.3 percent year over year to N1.020 trillion from N968.8 billion in the same period in 2021.
Additionally, the allocations made by PFAs to corporate securities accounted for 9.5% of their total investments during the time, while the allocations made by PFAs to equities accounted for 7.1% of their total investments during the period.
Analyst and Vice Executive Chairman of Highcap Securities Limited David Adonri responded to this situation by saying: “The increasing investment in corporate bonds may be related to anxieties by the PFAs with regard to the uncertainties as Nigeria approaches the 2023 general election.
“The stock market in Nigeria usually suffers the most during the second part of the year before general elections, according to historical statistics, as a result of political unpredictability.
“The rise in PFA investment in corporate bonds could be attributed to safety and interest rate in fixed income. The attention of institutional investors also shifted to debt where FGN Bond was active. Perhaps also, PFAs were reducing their exposure to equities, following a rate hike by the CBN. With the recent rate hike by CBN and fragile global economy, the possibility is high that financial assets will generally migrate to the safety of debt.”
In his own reaction, the Chief Executive Officer of APT Securities & Funds Limited, Mallam Garba said: “PFAs reduced their investment in equities is due to profit taking. Also, you know that equities investment has higher risk than fixed income investment. So PFAs may have reduced investment in equities for fear of uncertainty of what is likely to happen as we approach the general election.”