KUALA LUMPUR (Dec 13): The Employees Provident Fund (EPF) recorded a 7.6% lower total investment income of RM13.5 billion for the third quarter ended Sept 30, 2019 (3Q2019) from a year ago due to operating in an uncertain and volatile market that has worsened since 2018.
In a statement today, the fund's deputy chief executive officer (investment) Datuk Mohamad Nasir Ab Latif said its domestic equity portfolio — which recorded income of RM2.57 billion — was affected by weak earnings growth in the local equity market that saw the Malaysian stock market declining 5.3%.
The volatility was attributed to weakening market conditions, uncertainties arising from the Sino-US trade war, the Brexit deal, political instability in Hong Kong and geo-political tensions in the Middle East.
"Emerging markets continued to feel the heat from the escalating US-China trade war. Asian markets remained volatile, with Hong Kong's stock market being the weakest. In ASEAN, Singaporean and Thai equity markets underperformed, Indonesia's came under pressure from a strong US dollar while China's market was only prevented from weakening further by Beijing's stimulus measures.
"We had to work through a challenging market environment, including a weakening KLCI.
"Fortunately, our diversified portfolio, which includes investment income from overseas assets, helped mitigate some of the impact," he said.
EPF's portfolio is broken down into equities (38% of total investment asset); fixed income instruments comprising contributions from Malaysian government securities and their equivalent, loans and bonds (51%); money market instruments (6%); and real estate and infrastructure (5%).
Equities contributed RM7.47 billion in revenue, followed by fixed income instruments (RM5.33 billion), money market instruments (RM450 million), and real estate and infrastructure (RM250 million).
He also noted that the ongoing trade tensions have also caused a global economic slowdown, which hit export-reliant nations such as Malaysia, Singapore and Thailand the hardest.
The weaker purchasing power and jobs outlook have pulled Malaysia's consumer confidence down to its lowest levels since 4Q2017.
"The rising geo-political risks are expected to continue to add pressure on the global economy.
"We are cautious about the Malaysian economy's growth outlook. If trade tensions between the US and China continue, there will be knock-on effects on trade-dependent economies like ours," he said.
Nasir expects near-term market uncertainties to continue, affecting the capital markets.
"The EPF's performance reflects these uncertainties and our outlook for the market remains cautious and prudent," he said.
However, he said the fund will continue to take advantage of good buying opportunities that present themselves during market downturns.
"Volatility also provides EPF with an opportunity as we are always on the lookout for assets with sound fundamentals and good cash flow that can add long-term value to our portfolio. As a long-term fund, our concern has always been to achieve long-term results," he said.
According to the fund, RM1.3 billion out of the RM13.5 billion gross investment income was generated for Simpanan Shariah, while the remainder was for Simpannan 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.