Give GLICs the green light to ramp up overseas investments

Foreign investments have significant contributed to the EPF’s income.

PERMODALAN Nasional Bhd’s Amanah Saham Nasional Bhd has announced a total income distribution of 5.75 sen per unit for its flagship fund, Amanah Saham Bumiputra (ASB), for the financial year ended Dec 31, 2024.

The payout amounts to RM10.1bil, the highest income distribution in the last five years, bringing ASB’s cumulative income distribution since inception to RM196.5bil.

Although the income distribution is a five-year record, it could have been higher had the fund allocated more investments abroad, given the less-than -encouraging earnings performance of Corporate Malaysia.

The lower allocation for overseas investments could stem from the government’s concerted measure to “encourage” government-linked companies (GLCs), government-linked investment companies (GLICs) and corporates to consistently repatriate foreign investment income and convert it into ringgit, aimed at strengthening the local currency.

Although the FBM KLCI was the second-best performer in South-East Asia last year, with a 12.9% increase over the past 52 weeks, it still pales in comparison with the Nasdaq Composite, which rose 29% in 2024.

Meanwhile, the S&P 500 and Dow advanced by 23% and 13%, respectively.PNB president and group chief executive Datuk Abdul Rahman Ahmad admits that its overseas investment allocation was “relatively low” compared with other GLICs.

He points out that while the Malaysian economy is still doing well, this has not translated into better Corporate Malaysia earnings.

This is one worry that PNB has, given the underperformance of the FBM KLCI over a five to 10-year period, making it difficult for the fund to achieve income distributions of 9%, such as those made in the late 90s.

Currently, 77% of its funds are parked in the domestic market, with the remaining portion invested overseas.

Of the 77% allocated domestically, about 60% is in the equity market, meaning that its performance relies heavily on the FBM KLCI.

Compare this with the Employees Provident Fund (EPF), which is expected to not only exceed 2023’s payout of 5.5% but also declare a dividend of close to 6% for 2024.

For the first nine months of 2024, overseas investments accounted for just over RM29bil, or over half of the EPF’s investment income year-to-date.

This represents a higher allocation to overseas investments by the EPF, versus only 38.2% of its total managed assets in 2023.

Despite representing a smaller portion of the overall asset allocation in 2023 compared with domestic investments, the foreign investments have significant contributed to the EPF’s income, accounting for 53% to the total gross investment income of RM67.39bil.

The ringgit has strengthened against the US dollar and the currencies of nine regional countries since the government implemented its coordinated measure on Feb 26, 2024.

However, is this at the expense of higher income distribution for GLICs, which would ultimately benefit unit holders with the extra cash in hand?