The latest statistics from the Ghana Stock Exchange have shown that pension funds’ share of the equity market has declined from its earlier position in August 2021.
The pension funds have gotten their earlier impressive performance in the stock market reversed and have seen a decline in the equity holdings in the market.
Reacting to the development, Mr. Nana Boamah, the Chief Investment Officer (CIO) at Axis Pensions, noted that notwithstanding pension funds’ limited appetite for equities, this may not be a concern because some pension funds indirectly engage in the market through mutual funds. Mutual funds invest in a wide range of assets, and their performance is typically measured by the change in the fund’s total market cap, which is calculated by summing the performance of the fund’s underlying investments.
The Chief Investment Officer further bemoaned the spate of the fund purchasing equities secondarily from mutual funds. Mr. Boamah advised the pension funds managers to desist from such practice as it discredits the data from the Ghana Stock Exchange which might misinform decision-making in the country.
“Few pension funds have an appetite for equities. What I fear is that a lot of the pension funds are buying indirectly through the mutual funds, especially the balanced mutual funds.
“So, you may not see direct trades by pension funds, but they may be investing in mutual funds like the EDC Mutual Fund and Databank Mutual Fund. So, that probably could account for the decline in direct participation on the market.”
Mr. Nana Boamah
Pension funds in Ghana appear to avoid equities due to market liquidity, according to Mr. Boamah, but mutual funds appear to be the optimal investment vehicle for their funds. Mutual funds receive the vast bulk of money in employer-sponsored retirement plans.
This investment option, according to Mr. Boamah, offers quick liquidity. The other driving reason underlying the behavior of pension funds, according to the financial expert, is difficulty in buying some particular companies’ shares.
“Largely, this is because of liquidity; these pension funds want to get in and out of the market as and when they would want to – which the mutual funds provide easily. But with direct investing on the market, when you want the stocks, you may not even get them.
“So, I think it has more to do with liquidity than anything else. Our market has always been relatively illiquid. For some stocks, it is difficult to buy shares – such as Fan Milk, Benso Oil Palm Plantation and Total. Liquidity obviously is a problem on our market.”
Mr. Nana Boamah
Bad Market Performance
The market’s good performance has recently turned around, with the market capitalization dropping by Ghc1.9 billion, or 3.19 percent, from Ghc65.8 billion in mid-November to GH63.9 billion at the closing of trading in the third week of December.
As a result, the year-to-date return on the benchmark Composite Index (GSE-CI) has decreased by about 10%, from 55.07 percent to 45.18 percent in the last five weeks. The share price of market leader MTN, as well as other best performers such as oil and gas and financial firms, has fallen as a result of this news.
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