Thursday, April 18, 2024

Tale of two economies: Pension industry recovers

A rebound in global markets as positive sentiments return amid coronavirus outbreak has helped cushion Botswana’s multi billion pension industry.

The first half of 2020 was a tale of two markets. The year’s first quarter culminated in shard drop of assets value, as volatility spiked to unprecedented levels and the coronavirus pandemic spread like wildfire. The second quarter, however, proved the best quarter in over twenty years. Aggressive stimulus and policy, vaccine optimism, and a faster than-expected rebound in some economic data contributed to the strong performance. 

From April to June, global equity markets recorded their best quarterly gains in decades as economies began to reopen and massive fiscal and monetary stimulus boosted sentiment. Liquidity conditions improved, and bond yields stayed near record lows as central banks supported markets through corporate and government bond purchases. Throughout the quarter, markets also appeared to react to reports of progress in developing treatments and a vaccine for the coronavirus.

Botswana’s pension fund assets jumped by 11.3 percent to P91.9 billion. About 62.2 percent of the funds or P57.2 billion is invested offshore between equities (76.5 percent), bonds (11 percent) and alternative market securities (12 percent). The P91.9 billion strong pension asset base is made up of various pension funds in the country, including the biggest of them all, Botswana Public Officers Pension Fund (BPOPF), and the runner up Debswana Pension Fund (DPF). 

Though its yet to release its latest fund size and performance, BPOPF’s assets were valued at P66.5 billion in 2019, which is nearly 70 percent of Botswana’s total pension industry assets. The second largest pension fund by assets, DPF, in its August update said earlier impacts on the fund’s assets under management (AUM) in the first quarter of the year are already starting to have early positive recoveries.

“The Covid-19 pandemic and the consequent fall in the price of oil, has resulted in a steep drop in risky asset prices such as global equities. Markets have shown increased levels of vulnerability with most sectors of the global economy affected by the outbreak. Tourism, Travel, Manufacturing and Oil are some of the industries most affected by the pandemic,” said Gosego January, the chief executive officer at DPF, which represent nearly 10 percent of Botswana’s pension industry assets. 

In the first quarter of the year. DPF’s assets under management dropped by 8.7 percent from P8.4 Billion to P7.3 Billion. This has since been followed by a commensurate increase of 9.5 percent in the fund’s asset position to P8.5 billion in the second quarter.

“This was largely driven by global asset prices that outperformed on optimism that the reopening of economies would drive economic activity. Interventions taken by countries across the world to stimulate the economy through central bank actions and coupled with fiscal stimulus actions have provided the much-needed tailwind to equities and bonds,” January said. 

The public and private pensions funds have become targets for the Botswana government which is considering various ways of funding the P43 billion it says it needs to transform the jobless economy that has been growing at a faltering pace. 


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