What we learn about Zim’s investment options
ON March 26, 2022, the Insurance and Pensions Commission (IPEC) released the pensions report for the fourth quarter to December 2021.
The report can also be read as the final report for the year 2021.
It highlights major developments in the pension industry, excluding the public-sector pension scheme and the National Social Security Authority (NSSA).
It is based on unaudited financial statements of insured, stand-alone self-administered funds, as well as self-administered funds under insurers and professional fund administrators. A brief on pension funds According to the CFA Institute, pension funds are pooled monetary contributions from pension plans set up by employers, unions or other organisations to provide for their employees’ or members’ retirement benefits.
In other words, pension funds collect monthly premiums or contributions from members and invest the pooled amounts into various investment instruments from stocks, to bonds, to property and into the money market.
In 2021, total contributions from members for the sector amounted to $16,4 billion.
Because of their large pool of funds, pension funds are the largest investment blocks in most countries, including Zimbabwe, and dominate markets where they invest.
Because of their dominance in the investment world, it will not be farfetched to use pension funds’ experiences and performance to analyse investment options in the country.
Investment options in Zimbabwe According to the IPEC report, the bulk of pension funds are invested into the stock market, where the value as at December 31, 2021 was 50 percent of the industry’s asset base.
Investment property (properties owned for rental income) make up 30 percent of the asset base, prescribed assets 4 percent, unquoted equities 2 percent, money market and cash at bank 2 percent, et cetera.
In 2021, the pensions industry’s asset base grew in nominal terms by 189 percent to $318,9 billion from $110,2 billion recorded in December 2020.
According to the regulator’s report, the increase in the asset base was mainly driven by quoted equities and investment properties, which had a combined share of 81,2 percent of the industry’s total assets.
In fact, quoted equities constituted a bigger portion of the investment portfolio for the pensions industry.
New contributions were also being channelled to the stock market, which proved to be a value-preserving asset in an inflationary environment. In 2021, the Zimbabwe Stock Exchange surpassed inflation and was the best performing stock market within the Southern African region.
IPEC says the quoted equities constituted 55 percent of the industry’s asset portfolio in 2021.
On the other hand, the value of investment properties grew by 87,4 percent to $96,7 billion.
The share of investment property to the total industry assets increased by 3 percentage points from 47 percent in 2020.
Given where the pension funds are investing, it is safe to say the stock market, as well as investment properties, are the major investment options available in the country.
In 2021 investments in quoted equities dominated the investment portfolio for the pensions industry.
The major attraction to the ZSE is that it has for the past two years managed to beat both inflation and currency depreciation.
The level of activity on the stock exchange and the returns earned over the years reflect the market as a value-preserving asset.
For those risk averse to the vagaries of inflation and currency depreciation, there is also the Victoria Falls Stock Exchange, which trades in US dollars only.
There are four listed entities on that bourse.
Investment options are also found under unquoted equities and in 2021 the value of unquoted equities increased to $10,9 billion from $3,2 billion prior year comparative.
Other investment options are found in the money market where investors can invest in short- and long-term deposits.
However, the average 2021 deposit rates in the sector of below 20 percent against inflation, which closed the year at 60,7 percent, means the real returns on money market investments continued to be in the negative territory. Investors would find this unattractive. The other investment option is in the form of prescribed assets.
For pension funds, the value of funds in prescribed assets stood at $13 billion as at December 31, 2021. However, despite the nominal amount growing by 84,1 percent, the prescribed assets ratio of 4,08 percent was below the prescribed regulatory minimum of 20 percent.
This means investors as represented by pension funds do not find projects with prescribed assets status attractive.
Investor can also find Treasury Bills as an alternative investment instruments.
This year alone, Government plans to borrow $146,8 billion using Treasury Bills
and Treasury Bonds to finance key Government projects.
Of the to be issued, $8,7 billion will be for 180-day tenure, with the 270-days
worth $32,9 billion being issued in 2022.
A total of $32,4 billion will be borrowed through the 360-day paper.
The borrowing will be done quarterly with the 180-day bills being offered in the first and fourth quarter alone, whilst the other papers will be issued every quarter.
Interest rates will, however, have to be above inflation if positive returns are to be realised.
In addition to Treasury also plans to issue Treasury Bonds with a tenure ranging from 2 years to 7 years worth
million on the United States dollar-denominated Victoria Falls Stock Exchange Investors are likely to find these attractive as they do not present currency risk.