Afrinvest West Africa, a member of the Nigerian Stock Exchange (NSE) has disclosed that the investment figure of the national contributory pension scheme since its inception in June 2004, stands at about N70 billion ($538 million).
In addition to this amount, there is also a further N45 billion ($346 million) in public sector pensions funds currently held temporarily by the Central Bank of Nigeria (CBN), pending verification of the record of the account owners (civil servants with unclear employment records).
The investment figure was revealed by Mr. Fola Fagbule of the Investment Banking Division of Afrinvest West Africa, during the monthly breakfast session of the Lagos Business School, in Lagos.
He said the amount is expected to be remitted to the Pension Fund Administrators (PFAs) for management as soon as the records of the owners were properly reconciled.
At present, there is an estimated inflow of about N5 billion ($38 million) per month in new pension assets to the PFAs. This amount is expected to increase to between N6 billion ($46 million) and N7 billion ($53 million) monthly by the end of 2007 as more private sector employers begin to comply with PENCOM regulations and remit funds to PFAs, he said.
He added that all these figures present an evaluation of the level of liquidity in the stocks of the Top 50 and also describe the current size and distribution of pension assets in Nigeria. \"Our objective is to analyse the current level of liquidity of these Top 50 stocks, while attempting to measure the impact of the recent (and substantial) inflow of pension assets on market liquidity\".
Fagbule noted that as a preamble to Afrinvest analysis, the company has taken a look at the data on overall market performance from January 2004 to February 2007. While discovering that its analysis of market capitalisation for the Nigerian Stock Exchange (NSE) as a whole indicates that there have been tremendous market gains, an almost 100 per cent appreciation between January 2004 and February 2007.
\"Re-basing the NSE index to 100 in January 2004 and tracking market performance from then to February 2007 reveals a 93.4 per cent appreciation in overall market value\".
Besides, he said preliminary analysis therefore suggests that there has been an almost threefold increase in market liquidity for the major listed equities in Nigeria between 2005 and 2006, in part due to the injection of a significant amount of new funds into the market by newly constituted pension funds.
According to him, while some of this phenomenon can be directly attributed to the impact of pension asset inflows, further analysis is required on the other sources of growth in equity capital market inflows.
The investment expert said the analysis has not taken into consideration the impact of influx of funds into the stock market from international portfolio investors, adding that many Nigerian banks have now begun to be more aggressively extending trading and investment margin facilities.
He stressed that Afrinvest research further estimates that the growth in margin lending by banks outstrips the recent growth in bank balance sheet sizes.
The margin loans, he said, typically allows investors to multiply their trading portfolios by a factor of two, hence magnifying the amount of inflows into the market. The loans are however backed by the traded securities as collateral, and are an increasingly popular product offered by the newly capitalised banks.
\"Margin lending is thus an increasingly popular bank product that is combining with increased pension asset inflows and limited investment outlets to generate tremendous growth in equity market liquidity and outsized stock price appreciation\", he noted. - Guardian