EPF says gross investment income down to RM11.14b from RM14.77b a year earlier

Malay Mail
Malay Mail

KUALA LUMPUR, Oct 7 — The Employees Provident Fund (EPF) said that gross investment income fell to RM11.14 billion in the second quarter of 2022 (2Q22) from RM14.77 billion a year earlier.

EPF chief executive officer Datuk Seri Amir Hamzah Azizan said EPF’s global equity investment earnings dropped at a time when markets reacted to the elevated risks of slower world economic growth prospects and high inflation in a scenario not experienced by major economies since 1970s.

“Underlying these risks include the protracted Ukraine-Russia conflict, which disrupted global supply chains that sent prices soaring; rise in global inflation rates, in-step interest rate hikes by numerous central banks, partly in response to US Federal Reserve rate hikes and partly to reel in inflationary pressures.

“These risks had been flagged at the beginning of the year, but the rate at which they materialised was unprecedented, like the magnitude and speed of US Fed (United States Federal Reserve) rate hikes,” he said in a statement this evening.

He stressed that these factors had intensified and resulted in most markets posting their worst first half of a year in decades, with US stocks recording their worst in more than 50 years.

For this quarter, Amir said equities continued to be the main contributor of income at RM4.88 billion, accounting for 44 per cent of the total gross investment income in the quarter under review.

“Expectations of global growth have suffered which caused a persistent sell-off in the global markets.

“The consistent downtrend impacted EPF’s equity earnings, especially through global stock markets, which declined between 17 per cent and 21 per cent during the 1H 2022.

“Nonetheless, the EPF’s diversification into different asset classes, markets and currencies, as prescribed in its strategic asset allocation (SAA) helped EPF to remain resilient against turbulent market conditions and to protect its long-term investment returns,” he said.

Amir said private equity which is part of the equities asset class managed to deliver healthy returns of RM1.15 billion, an increase of over 100 per cent against RM0.54 billion recorded in Q2 2021.

“This portfolio is gradually becoming more important for the EPF’s diversification efforts as the volatility in listed equity markets remains high,” he said.

He said fixed Income instruments, comprising Malaysian Government Securities (MGS) and equivalent, as well as loans and bonds, continued to provide a steady stream of income, mitigate the impact from short-term market volatility and provided stability to EPF’s overall income.

“This asset class that serves a capital preservation role has been the anchor for the EPF and contributed a significant portion of gross investment income for Q2 2022, at 42 per cent of total income or RM4.73 billion.

“Real estate and infrastructure registered an income of RM1.20 billion, while income from money market instruments generated RM0.33 billion, in line with the return expectations set for these asset classes,” he said.

Amir said that its overseas investments, which make up 36 per cent of EPF total investment assets, generated RM5.51 billion in income, representing 49 per cent of the total gross investment income recorded.

“A total of RM1.16 billion out of the RM11.14 billion gross investment income was generated for Simpanan Shariah in Q2 2022, and RM9.98 billion for Simpanan Konvensional.

“Simpanan Shariah derives its income solely from its portion of the Shariah portfolio while income for Simpanan Konvensional is generated by a share of both the Shariah and conventional portfolios,” he said.

Amir assured that the EPF is keeping a positive outlook on the home front and believes that the country’s economic recovery would continue further for the remainder of 2022, following stronger gross domestic product (GDP) growth of 8.9 per cent for the second quarter.

“The latest economic data points also signal a strong likelihood that Malaysia’s full year growth would settle at the upper range of the official forecast of between 5.3 per cent and 6.3 per cent in 2022,” he said.

Amir however said the EPF remained cautious of key risks that continue to rattle markets and investor sentiment such as soaring global inflation rates, geopolitical tensions and tightening of monetary policies.

“Crude oil prices have witnessed a decline amid the growing threat of an economic recession.

“Further aggressive interest rate hikes by central banks are also expected to slow economic growth and impact equity and fixed income markets.

“Markets are still very volatile, and while we are deeply concerned by these developments, we maintain our long-term and balanced approach in our investment decisions as there are pockets of opportunities which we can capitalise on during this challenging time,” he said.

The rapid recovery in labour market conditions has also helped fuel domestic growth, Amir said, with the number of employed persons increasing 3.2 per cent to 15.7 million persons.

“This has helped the EPF increase its membership coverage and encourage members to voluntarily contribute above the statutory rate to augment their retirement savings.

“The EPF membership showed a gradual and stable growth over the past five years with CAGR (compound annual growth rate) of 2.0 per cent.

“This was attributed to the strong growth of new member registrations of 177,230 in the second quarter of 2022 to a total of 323,416 for the 1H 2022, adding to the total number of EPF members as of June 2022 of 15.5 million,” he said.

Out of that amount, Amir said a total of eight million were active members, the highest recorded in the last five years, from 7.2 million in 2018.

“Imputed wages of active members also reflected the economic recovery, with median wages averaging 6 per cent growth in the 12 months to June 2022. Wage growth was broad based across the income spectrum of active members,” he said.

The take-up rate for both EPF voluntary contribution programmes has also shown significant improvement compared to last year, he said.

He noted that i-Saraan new registrations have increased from 17,142 in 1H 2021 to 311,028 in 1H 2022, while Kasih Suri Keluarga Malaysia KWSP new registrations increased from 1,521 to 33,875 during the same period.

i-Saraan is a voluntary contribution programme designed to allow workers in the informal sector or with no formal income to save for their retirement with the EPF, whereas Kasih Suri Keluarga Malaysia KWSP is an incentive catering specially for housewives registered under the e-Kasih Programme to save with the EPF for their future wellbeing.