New pension guidelines to boost liquidity on equity market – market analyst

New pension guidelines to boost liquidity on equity market – market analyst
Karl Ocran, Investment Strategist-Axis Pension Trust

Chief Investment Strategist at Axis Pension Trust, Karl Ocran, has said that the new pension guidelines have opened up pension funds to gain some minimum level of exposure into the equity market through the constituent fund structure.

With the introduction of new pension funds investment guidelines, liquidity on the equity market is set for a major boost on the back of increased exposure to funds on the stock market.

Per the new regulations, constituent funds from Tier 2 schemes are being mandated to invest a minimum 15 percent of assets under management and a maximum of 40 percent in equities. At the end of 2020, private pension funds held about GH¢22billion in assets under management (AUM).

“What this implies is there is going to be a wave of liquidity into the stock market, and we have seen this work in other markets – such that the regulator through new regulations enhanced liquidity and participation in the stock market,” Mr. Ocran said in an interview with the B&FT.

This is expected to move the market from a structurally low level to a structurally high level.

“Once that happens, we should expect the level of activity to increase. We expect something similar to happen in the equity market, where the market’s structural level will change because of regulation reasons; and that in itself will lift the market’s structure higher, he said.

He added that the market can move from a base of, say, about GH¢64billion to around GH¢90 or GH¢100billion.

Managing Director of the Ghana Stock Exchange (GSE), Ekow Afedzie, in an earlier engagement noted that the Exchange is targetting to increase liquidity on the equities side of the securities market to 15 percent from the current level of one percent, within five years.

Per the Capital Market Master Plan, the level of liquidity on the equities market compared with the total market capitalisation has been very low over the years.

Highlighting the impact of similar regulations on the bonds market, Mr. Ocran noted that most of the liquidity in the bond market is coming from the pension funds, which hitherto was not there.

“Once the regulation came into force, the structured nature of the fixed income market changed; and now we’ve seen the adequate supply of liquidity to the point where yields don’t really even go up too much but are being compressed by the availability of liquidity,” he said.

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