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‘How increased activities of PFAs in stock market can stimulate investment’

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Patrick Ezeagu

The Association of Securities Dealing Houses of Nigeria (ASHON) has renewed the call for increased investment of Pension Fund Administrators (FPAs) in the market.

PenCom has embarked on major reforms aimed at making more capital market investment windows open to PFAs

The reforms are contained in a 2015 Draft Regulation on Investment of Pension Fund Assets that is presently awaiting approval to become operative. The reform also seeks to increase the number of capital market products included in the list of “Allowable Instruments”.

The total assets under PFAs management are believed to be at N5 trillion. Of the amount, only 12 percent is invested in equities and 15 percent is invested in debt instruments while 70 percent is held in Federal Government bonds and Treasury Bills.

However, an ongoing reform of PFAs functions is expected to address the imbalances in the investment policies of the administrators.

The ASHON’s Chairman, Chief Patrick Ezeagu explained that the capital market needs to be deepened in order to increase its absorptive capacity.

Ezeagu noted that this should be one of the areas where the PFAs could be deployed to strengthen the market. Besides, he urged the government to utilize the market to raise long-term funds to finance the budget in the areas of infrastructure projects, while criticizing the current re-introduction of Value Added Tax (VAT) to capital market transactions.

He noted that the assets held by PFAs largely have long-term tenor, adding that these assets are desirable on the stock market in a ‘win-win situation’.

Furthermore, he also advocated the need for more enlightenment on the benefits of increasing asset allocation of PFAs to the capital market.

“The way forward is to encourage and educate the retail investors to continue to believe in the fundamentals of the market (the corporate earnings) and also to implore PENCOM to direct the PFAs to increase their holdings in equities as a matter of policy, being long term securities since their business model is long term in nature,” Ezeagu said.

On the risk aversion measures for investors in the capital market, Ezeagu explained that existing and potential investors should contact stockbrokers and securities dealers for sound professional advice, while each investor will receive peculiar advices based on the outcome of profiling and the immediate market circumstances to buy.

“The selection criteria is still very relatively as it depends on the securities’ performance, especially, current and historical. There is a need to consider the impact of market hearsay, which is the application of emotional consideration, risk appetite of an investor and the investor’s expectations and investment target.

“ We believe that the conditions that necessitated the waiver of VAT on capital market transactions are still prevalent, its reintroduction will definitely set the market backwards in terms of reviving investor confidence. “, he said.

According to him VAT will increase the market’s transaction cost and thereby make the market uncompetitive. The re-introduction of VAT is a great disincentive to investment in the capital market.”

ASHON’s 2nd Vice Chairman, Sam Onukwue explained that deepening the capital market requires holistic approach.

According to him, building investor confidence must be accorded priority for them to take advantage of investment opportunities in the market.

He stressed the need for the media to be wary of negative impacts of controversial headlines that can trigger panic sale of shares, while urging investors to take advantage of the current undervalued prices of many blue chip companies to beef up their portfolios.


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