KUALA LUMPUR (June 21): The Employees Provident Fund's (EPF) total investment income for the first quarter ended March 31, 2022 (1Q2022) fell 17.83% year-on-year to RM15.85 billion from RM19.29 billion, dragged by a significant decline in worldwide markets.

In a statement on Tuesday (June 21), EPF chief executive officer Datuk Seri Amir Hamzah Azizan said the fund had a strong start in the earliest part of the first quarter, but the situation took a turn as global markets suffered a decline, causing lower returns in bonds and equities throughout the remaining quarter.

“The decline was attributed to a number of developments stemming from geopolitical tensions, impact from soaring inflation rates, and interest rate hikes.

“The Russia-Ukraine war only exacerbated the situation, causing further uncertainty and volatility at a time when countries are still struggling to recover from high debt burdens and stretched public finances from the pandemic,” he said.

Amir Hamzah said although earnings generation from equities, which continued to be EPF’s main income contributor, was impacted by the market slowdown, the EPF managed to leverage its portfolio position to capitalise on additional gains.

He said that during the quarter under review, equities contributed RM10.46 billion in income, accounting for 66% of total gross investment income.

After taking into account the cost write-down on listed equities, net investment income for the asset class generated RM9.37 billion for the period.

Amir Hamzah said a total of RM1.09 billion was written down for listed equities during the quarter, thus netting the total net investment income in 1Q2022 to RM14.76 billion.

He said writing down is an internal policy adopted by the EPF on its listed equity investments as a prudent measure to ensure the portfolios remain healthy.

He said fixed income instruments, comprising Malaysian Government Securities and equivalent, as well as loans and bonds, contributed a steady income of RM4.75 billion, or 30% to the gross investment income. The income recorded was higher compared to RM3.89 billion generated in 1Q2021, largely due to higher market yield in 1Q2022 compared to the same period last year.

Real estate and infrastructure registered a decrease in income to RM360 million, from RM710 million in the corresponding period in 2021. Income from money market instruments stood at RM280 million, from RM380 million in 1Q2021.

Amir Hamzah said that as at March 2022, the EPF’s overall investment assets grew to RM1.02 trillion, of which 37% was invested in overseas investments.

He said the EPF’s diversification into different asset classes, markets and currencies continue to provide income stability and add value to EPF’s overall return.

In 1Q2022, the EPF’s overseas investments generated RM8.23 billion in income, representing 52% of the total gross investment income recorded.

The EPF said the next quarter onwards will see the pension fund taking a cautious stance to navigate the downside risks associated with post-pandemic recovery and the war in Ukraine.

It said the inflationary concerns, supply chain disruptions and tightening of monetary policy by major central banks are likely to continue to dampen both the equity and bond markets.

Amir Hamzah, however, said the EPF remained optimistic of Malaysia’s growth prospects, especially following the reopening of economic and social sectors, which is expected to pick up as the year progresses on the back of heightened domestic and external demand, in line with the government’s growth projection of between 5.3% and 6.3% for 2022.

As for the weak equity market performance, he said the EPF would continue to rebalance the fund’s position in stocks that are fundamentally strong but undervalued.

“In addition to prioritising members’ interests and future wellbeing, the EPF also needs to ensure it is able to perform going forward. Any further withdrawals would financially impact the EPF and weaken the fund’s current portfolio position and capacity to ensure sustainable returns."

“We will strive to ensure the health of our finances and globally diversified portfolio, guided by our Strategic Asset Allocation (SAA), so that we are able to ride out volatilities in pursuit of our long-term portfolio objectives,” he said.