The Central Bank of Nigeria’s (CBN) restriction of Open Market Operations to only foreign investors and Nigerian banks could end up providing a welcome boost to the Nigerian Stock Exchange.
That the ban affects pension funds, which as at last week had holdings in bonds amounting to N2.2 trillion, ($6 billion) means it’s possible for the Nigerian Stock Exchange to get a much-needed boost this year.
However, with a quarter of the assets managed by the Nigerian pension funds up for grabs, the Nigerian stock market might be top destination for the “homeless funds”. The NSE, according to Bloomberg Index, is the third-worst performing stock market over the past year globally.
Analysts expect corporate heavyweights to gain as pension funds look for high-yielding investment. Nigerian pension funds, the largest in sub-Saharan Africa after South Africa, have cut their exposure to local shares to 5% of total assets from a high of 9% in April 2018, according to the Nigerian Pension Commission.
“There is real hope this could be good for equities, we should see a lot of corporate heavyweights gain in coming weeks as pension funds look for high-yielding investment,” Michael Nwakalor, analyst with CardinalStone Partners.
Meanwhile, it also expected that the retirement funds could search for higher returns in corporate debt, bank fixed deposits and other domestic government debts. The pension industry with only 8% of Nigerians working saving for retirement, and the United Nations expecting the country to be the third most populous country by 2050, has enormous potential to grow.
“While it is possible to see some asset re-allocation towards equity markets, for pension funds to start buying equities again, the economic policy environment has to show credibility around structural reforms to unlock economic growth,” said Wale Okunrinboye, head of investment research at Sigma Pensions.”