The Public Service Superannuation Fund (PSSF) has significantly increased its investment in Kenya’s Eurobonds, with holdings soaring by 69% to Sh4.4 billion. This surge highlights a growing preference among pension funds for higher-yield foreign debt, driven by the stabilization of global financial markets.
The pension scheme significantly increased its holdings, according to recent disclosures. This shift is a major reversal, following a period where local institutional investors were hesitant due to volatile international bond markets. New purchases drove the increase as yields on Kenya’s Eurobonds improved. This improvement came after successful debt refinancing efforts by the country, which eased investor fears regarding its external obligations.
Improved market confidence in Kenya, following the successful repayment of a significant Eurobond maturity earlier this year, has made instruments like Eurobonds more attractive to long-term investors, such as pension funds. This improved sentiment has resulted in decreased yields and increased bond prices. Consequently, PSSF is expanding its Eurobond portfolio.
Analysts interpret the fund’s decision as a vote of confidence in Kenya’s credit outlook and the government’s commitment to strengthening its finances. Despite the associated currency and market risks, particularly when local interest rates are strained, eurobonds provide more attractive returns compared to domestic fixed-income investments.
PSSF’s increased Eurobond exposure is part of a broader diversification strategy. This strategy is designed to achieve a better balance of risks and returns for public employees’ retirement funds. By spreading investments across both domestic and international markets, the fund aims to enhance long-term performance and safeguard contributors from potential volatility in the local market.
Investing pension funds in foreign currencies carries the inherent risk of exchange rate fluctuations, according to experts. A significant depreciation of the local currency, such as the shilling, can diminish gains when returns are repatriated. Consequently, the adoption of rigorous risk management and hedging strategies remains crucial.
The stabilization of Kenya’s external debt profile has led to an increase in PSSF’s holdings, indicating a growing willingness among local institutional investors to embrace offshore assets. Analysts predict continued demand for sovereign bonds, driven by the commitment to fiscal discipline and ongoing economic growth, even with the projected slow reduction in global interest rates.
The pension scheme’s decision to adopt a more aggressive, yet carefully considered, investment strategy signals to contributors a commitment to enhancing returns, despite the current challenging global financial climate.
