Nigeria’s Pension Fund Index closed the Month of May in negative territory posting a return of -4.12%. The index has so far returned a whopping -11.96% year to date May 2019 (2019 so far).
NSE Pension Index: Nigeria’s Pension Fund Index is a selection of stocks that meet the criteria for pension funds to invest in. Follow the link for stocks that make up this index. They are some of the largest companies quoted on the stock exchange and meet criteria such as float, financial reporting standards, transparency, and corporate governance.
According to data from the Pension Commission, total Pension Fund Assets as at March 2019 was N9 trillion out of which N590.6 billion was invested in the stock market. Thus pension fund contributors have lost about 12% (about N60 billion) of that amount to the stock market. Nigerians are apprehensive about investing in the stock market which explains why demand has been low despite impressive results over the last few years. Nevertheless, Pension Fund Managers have no choice but to place some of their investments in the stock market
Fundamentally most of these stocks are profitable and are market leaders in their sectors. They include FUGAZ Banks, Dangote Cement, Dangote Sugar, Presco, Okomu Oil, Seplat, etc. Stocks in this index have a market value of N9.3 trillion about 68.3% of the total market capitalization of N13.6 trillion. When they sneeze the stock market catches a cold.
What this means: Nigerians who are pension fund contributors have in general lost 11% of the value allocated to the stock market. However, in general terms pension fund asset returns may be positive as just 6.5% of pension assets are allocated to stocks. About 72% of contributions are allocated to various FGN Securities which pay interest ranging between 7% and 17%.
Other things to note
- Though the NSE Pension Index returned 12% it is possible that some Pension Funds may have performed better than others.
- This also suggests there are pension funds out there that may have posted a negative return on their stock market portfolio that is larger than the 11% recorded in general.
- The 11% return does not factor in the dividend payments that have been earned by Pension Funds. As indicated most of the stocks listed above are profitable and have sound fundamentals.
- For pensioners close to retirement, withdrawals from pension funds that are heavily skewed towards stocks will be significantly lower compared to others that are not.
- Foreign investors parsing through these data have one more reason to avoid investing in Nigerian stocks further worsening an already dire situation.
The Optics: This is an obvious bad Omen for the Nigerian stock market despite the renewed interest following MTN’s listing. The stock market like any market depends on demand and supply to reflect the true value of stocks. But with demand basically drying up stock prices continue to be depressed month after month not considering that companies are actually posting impressive profits.