EPF investment income up 19.4% in 3Q

The provident fund said that of the RM47.86bil income, RM4.62bil were due to mark-to-market (MTM) gains of securities that have not been realised.

PETALING JAYA: The Employees Provident Fund (EPF)’s total investment income rose 19.36% year-on-year (y-o-y) to RM14.67bil for its third quarter ended Sept 30, 2023 (3Q23), driven by gains as a result of a weaker ringgit.

On a nine-month basis, the provident fund saw a 33% increase in its total investment income to RM47.86bil from RM36.04bil a year ago.

“With the ringgit even weaker in the past two months than in the third quarter, the fund could be on track to deliver a much stronger performance this year, more so its domestic investments were performing better,” an analyst said.

The provident fund said in a statement that of the RM47.86bil income, RM4.62bil were due to mark-to-market (MTM) gains of securities that have not been realised.

The MTM gains were mainly due to the fluctuation of foreign exchange rates.

EPF chief executive officer Datuk Seri Amir Hamzah Azizan said global equities made a negative return in the third quarter, reversing strong gains recorded in the first half of the year.

He expected the Gaza-Israel war and ongoing Russia-Ukraine conflict to contribute to uncertainty and market volatility.

“We anticipate geopolitical risks will continue to amplify the already turbulent economic situation.

“Market sentiment also experienced various changes, influenced by multiple factors such as concerns about the health of China’s economy, rising energy prices and increasing government bond yields, all against the backdrop of the potential for an extended period of high interest rates,” he said.

He added that a sharp increase in sovereign yield was the primary reason behind the negative total returns experienced by the global fixed-income markets during the quarter.

“The increase in government bond yields was influenced by resilient economic data and the prevailing narrative of ‘higher for longer’ policy rates due to inflation moderation being slower than expected,” Amir said.

Meanwhile, equity investments accounted for 63% of the total investment income in 3Q23, with RM9.17bil generated after netting off writedowns, up from RM5.89bil a year ago.

The increase was attributed to the fund managers’ proactive approach to realise capital gains at the beginning of the quarter, which then witnesses some equity indices recording its best year-to-date performance, particularly for developed markets.

Writedowns for 3Q23 were minimal at RM100,000 compared with RM36mil a year earlier.

“Cost writedown is an internal policy adopted by the EPF on its listed equity investments as a prudent measure to ensure the portfolios remain healthy,” the fund said.

Fixed-income instruments contributed 32%, or RM4.76bil, to total investment income during the quarter, while real estate and infrastructure registered an income of RM290mil and money market instruments generated RM450mil.

The fund said investment assets continued to record strong growth, backed by higher income generated from its investments and healthy net contributions received as at September 2023, amounting to RM73.58bil compared with RM63.61bil a year ago.

As at September 2023, the EPF’s investment assets stood at RM1,092.32bil, of which 37.7% was invested in overseas investments.

In 3Q23, the fund’s overseas investments generated RM6.55bil, or 45% of the total investment income recorded.

“The increase in overseas exposure since December 2022 was primarily due to the favourable movements in the foreign exchange translations as well as the capital appreciation that pushed the valuations higher,” it said.

In addition, a total of RM42.71bil out of the RM47.86bil investment income was generated for Simpanan Konvensional, and RM5.15bil for Simpanan Syariah.

The fund said there were 365,519 new members, bringing the total number of EPF members to 15.99 million as at Sept 30, 2023.

A total of 8.53 million, or 50.4%, of Malaysia’s labour force are active members, with the EPF’s active to inactive member ratio remaining at 53% to 47% as of Sept 30, 2023.

During the quarter, new employer registrations were recorded at 63,902, bringing the total number of employers registered to 603,326.

The fund noted that the decrease was due to a return to normalcy following the notable surge observed in 2022, on the back of the resumption of businesses post-pandemic.

Amir Hamzah said Malaysia’s New Industrial Master Plan 2030 provided a strategic direction to develop the nation’s industrial sector to become globally competitive with high economic complexity.

“It is crucial for us to monitor closely these developments and their potential impact on our portfolio.

“While we had a good third quarter, it is not indicative of the performance in the fourth quarter, which remains a concern given the escalating geopolitical risks that threaten the global financial system amid heightened risks of higher inflation and slower growth,” he added.