Pensions industry forex asset holdings improving

The pensions industry continues to increase foreign currency-denominated assets as a measure to mitigate against potential value erosion synonymous with a hyper-inflationary environment.

This comes as the industry is still grappling with the 2009 loss of value which has contributed significantly to the low confidence that the industry is currently facing.

The Government implemented bold policy interventions to address transitory price and exchange rate volatility which resulted in financial sector stability.

However, the sector remains highly volatile as the official and unofficial margins continue to widen while price increases have been witnessed in certain commodities and services.

The Insurance and Pensions Commission (Ipec), in its third quarter 2023 pensions report said the sector’s foreign currency-denominated assets increased by 42 percent to US$326 million as at September 30, 2023, from US$228 million in the same period in 2022.

“The holding of foreign currency-denominated assets helps in cushioning the assets from being eroded by inflation in the current hyper-inflationary environment,” Ipec said.

According to the report, the major asset classes for the period were equities, prescribed assets, and money market investments, which constituted 47 percent, 20 percent, and 9 percent, respectively.

This compares to the major asset classes as at 30 September 2022 which were equities, prescribed assets and money market investments constituting 29 percent, 22 percent and 15 percent respectively.

“The comparison shows that equity investments increased by 18 percent while money market investments decreased by 6 percent,” reads the report.

The sector’s contribution arrears for the period under review stood at US$14,66 million, thus constituting 4 percent of the industry’s foreign currency-denominated assets.

In terms of the Zimbabwe Dollar asset holding, the industry’s total assets stood at $10,62 trillion, which was a nominal increase of 1 072 percent from $905,83 billion reported in September 2022.

The industry’s assets are concentrated in investment properties and quoted equities, which constituted a combined 76 percent of the industry’s total portfolio.

The report shows that investment property constituted 55 percent of total assets compared to 47 percent for the same period last year.

“This indicates the industry’s investment preference of the asset class and the higher rate of increase in property values in line with inflation compared to other asset classes.

The property sector which is largely underpinned by a dollarised economy is widely considered a safe haven for investors in order to protect value.

Growing property sector

According to research firm Equity Axis, Zimbabwe’s property sector exhibited growth in 2023, underpinned by the sustained surge in the residential property sub sector.

In its recent Zimbabwe sector review report, the firm said commercial real estate also realised growth, but at a constrained scale, while the industrial property sub sector remains a laggard, mirroring the performance of the broader industrial sector.

“The performance of the residential housing sector is largely underpinned by a dollarised economy, which has allowed for renewed interest by developers and financiers such as banks and sustained demand from the diaspora.

“A growth in remittances, now surpassing US$2 billion per annum, the fourth largest in Africa, has helped the country not only attract foreign currency flows but also grow in the real sector, particularly the residential sector,” it said.

In pursuit of a stable currency, most operating companies in Zimbabwe are migrating towards US dollar sales as they remain skeptical of the local currency, which remains highly volatile.

Economists believe the economy is over 80 percent dollarised with official statistics revealing that more than three-quarters of transactions for food and goods purchases are now being done in US dollars.

In the banking sector, overall deposits are estimated at over 60 percent of total deposits, while the bulk of loans and advances are now in hard currency.

First Mutual Holdings (FMHL) said in its recent financials that as the local economy increasingly dollarized, the group continued to expand its USD-based product portfolio to maintain product relevance.

First Mutual Properties (FMP) said the property market continued to see rental payments in multiple currencies, with the majority of payments being done in US dollars, while operating costs were mainly in the Zimbabwe dollar currency.

Nampak managing director John van Gend said the group benefited from improved USD collections on the back of constrained Zimbabwean dollar liquidity, most of which was deployed into working capital to meet customer demand.

According to IH Securities, demand for comparably more affordable US dollar loans will remain high, eventually accelerating the present dollarization trend.-ebusinessweekly