PETALING JAYA: A higher dividend may be expected from the Employees Provident Fund (EPF) this year as it recovers the bulk of its investments overseas after a 14% year-to-date improvement in the Dow Jones Industrial Average, which closed above 10,000 points on Wednesday.
“With the Dow Jones recovering to the 9,000-plus level since July, our equity investments in the overseas markets are now above our costs,’’ EPF CEO Tan Sri Azlan Zainol told StarBiz.
“As a result, a higher dividend for 2009 compared with the previous year can be expected, provided that the markets do not experience any erratic disruptions in the next three months.”
He said “in relation to our equity investments, we will continue to remain vigilant on the development of the global and local markets.’’
Last year, the EPF declared a dividend of 4.5% compared with 5.8% in 2007, mainly due to the increase in provisioning resulting from the sharp decline in global equity prices.
In a statement issued on March 16, the EPF had said that in accordance with accounting best practices, it had made allowances of RM4.69bil for diminution in value of overseas and local equities (of which RM3.2bil was allocated for overseas stocks) compared with RM520mil the year before.
“Our policy is to provide in full for every diminution in value in our investments overseas,’’ Azlan had told StarBiz then.
An analysis of the EPF dividend over the last five years, split into equity and fixed income, had revealed that without making any provisions, the dividend could be much higher.
The EPF had invested RM16bil on a staggered basis in five major markets – the United States, Britain, Australia, Singapore and Japan.
As at the end of 2008, the fund had invested RM87.9bil in equities, which was 25.7% higher than the previous year.
Since the beginning of this year, the FTSE 100 index has gone up by 18.3%; Nikkei 225 (15.6%); S&P/ASX 200 (30.6%) and Straits Times (54%) while the FTSE Bursa Malaysia KL Composite Index (FBM KLCI) has improved 42.2%.
In sharp contrast, the figures at the end of last year showed that the fund’s overseas investments had deteriorated by 19.5% and by 18.4% domestically.
This was triggered by the 39% drop in the FBM KLCI; Dow Jones (-34%); FTSE 100 (-31%); Nikkei (-42%) and Singapore (-49%).
“It (this year’s dividend) will be definitely better than last year’s,’’ said UOB Kay Hian (M) Holdings Sdn Bhd head of research Vincent Khoo.
“But the biggest exposure is in fixed income where yields are low. So (the dividend) is probably less than 6%,’’ he said, adding that a good year to compare with would be 2007 when equity markets were very strong.
Choong Khuat Hock, head of research at Kumpulan Sentiasa Cemerlang Sdn Bhd, said “gains from domestic investments are more important in determining how much dividend the EPF can pay.’’
“This is because the EPF invests a much larger proportion of its funds in domestic rather than international equities,’’ he noted.
Second-quarter results already showed a 46.64% increase in income to RM4.8bil.
Equities were among the highest income contributors in the second quarter, growing to RM1.74bil, representing seven times the income earned in the first quarter.
“The second quarter of 2009 has shown signs of recovery in major global equity indices especially in the countries that EPF invests in,’’ Azlan had said in his second quarter statement.
“While we cannot say that the worst is over, should this trend continue, or at least maintain at the current level, we are positive that we can reverse the bulk of the allowances for diminution in value of equity investments that we made last year.’’
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