Financial market analysts have called for government’s deliberate policy to ensure that a huge chunk of pension funds are invested in infrastructure development if the country is to maximise returns.
In an interview on Tuesday, one of the market analysts, Benson Jere, who is also chief executive officer (CEO) of NBM Capital Markets Limited, observed that a huge allocation in interest bearing assets is not healthy, especially now that interest rates are low, leaving limited scope for pension funds to accrue good returns.
He urged the need for a deliberate policy to promote property development through pension funds and promotion of small and medium enterprises (SMEs) through development bank financing to boost small firms and later have them registered on the Malawi Stock Exchange (MSE).
This, Jere said, could increase diversification on the 14-counter local bourse.
“The regulator of the fund should have a deliberate policy that should force fund managers to reinvest most of the pension funds into infrastructure development.
“Property should have been higher than the government debt and equities. The problem is that we are vulnerable because of limited stocks on MSE which as well limits diversification,” he said.
Reserve Bank of Malawi (RBM) statistics indicate that as at December 31 2018, investment in listed equities continued to dominate the asset portfolio mix at 39.5 percent while asset allocation in government securities remained constant at 34.2 percent.
Unlisted equity, which included private debt, fixed deposits and property, on the other hand, were at 5.3 percent, 8.1 percent and 3.9 percent, respectively.
Total investment income increased to K132.3 billion in December 2018 from K122.7 billion in December 2017.
Income realised from investments for the second half of 2018 increased to K51.5 billion from K25.6 billion earned during the corresponding period in 2017, lower than the K80.8 billion earned in the first half, due to negative returns of the stock market, particularly in the fourth quarter of 2018.
However, unrealised gains, however, still accounted for 57.8 percent of total income, according to RBM.
Another market analyst, Armstrong Kamphoni, said in an interview on Tuesday that listed equities tend to grow over the long-term, but are also subject to short-term fluctuations .
He observed that pension fund managers may not have many alternatives to invest in; hence, they will remain in government debt.
“Government debt has to be safe unless there are extenuating circumstances. If sovereign debt is no longer safe, then you have a problem.
“The only observation is that most of the government debt might be short-term and may not match the long-term liabilities,” said Kamphoni, who is CEO of Cedar Capital Limited.
On his part, market analyst Cosmas Chigwe said listed equity are riskier investments, but these are invested through seasoned fund managers who know how to manage the risk.
He said the local equity market is not connected to outside markets, as such there is little risk for external shocks.
“The one class of assets that we could worry about there would be the private debt considering the relatively high non-performing assets ratio in Malawi,” he said.
But MSE operations manager Esnart Suleman said though equities have higher risk compared to other investments, the risk can be diversified and managed through stock selection based on in-depth research and analysis.
She said: “When investing pension fund money, fund managers are ideally supposed to match the liability profile to the right assets. In terms of risk, every asset class has a level of risk and is impacted by the macro-economy.
“Actually with interest rates going down, the stock market is the best avenue to invest for good returns.”n