PETALING JAYA: The Employees Provident Fund (EPF) has cautioned members to temper expectations for the second half of 2026 (2H26), saying the strong market opportunities that supported investment performance in the first half may not be repeated amid elevated market and geopolitical risks.
The fund’s chief executive Ahmad Zulqarnain Onn said the fund had capitalised on strong global equity markets while maintaining a disciplined, long-term investment approach.
Singing a cautious tune going into 2H26, he added: “Similar to the first quarter (1Q26), we continued to front-load income during the 2Q26 as market and geopolitical risks remain elevated.
“Our focus remains on delivering sustainable long-term returns, backed by a resilient portfolio.”
For context, front-loading income in institutional investing means actively realising and locking in investment gains early in the financial year, to secure returns and protect portfolios against anticipated market volatility or geopolitical risks later in the year.
EPF recorded total investment income of RM57.5bil for the six months ended June 30, 2026, up 48% from RM38.92bil a year earlier.
The figure included unrealised mark-to-market gains and losses on securities, mainly arising from foreign exchange fluctuations, which are not distributable as dividends.
For the second quarter alone, investment income rose 44% year-on-year to RM29.77bil from RM20.61bil, with equities remaining the biggest contributor.
Equity income jumped 52% to RM20.94bil from RM13.77bil previously, accounting for 70% of quarterly investment income.
EPF said in a media statement yesterday that the recovery in global equity markets provided opportunities for fund managers to capture gains, while investor sentiment improved as concerns over energy prices eased and confidence in the artificial intelligence investment cycle remained strong.
Fixed-income instruments contributed RM6.91bil, or 23% of quarterly investment income, providing stable returns and acting as a defensive component amid market volatility.
Real estate and infrastructure contributed RM1.3bil, while money market instruments generated RM620mil.
The fund’s total investment assets stood at RM1.54 trillion as at June 30, with 39% invested globally.
International investments generated RM19.29bil, accounting for 65% of total investment income in the quarter.
Meanwhile, EPF continued to see growth in membership and contributions.
Total membership reached 18.5 million following the addition of nearly 441,850 new members in the first half, while active members rose to 10.9 million.
Active employers increased to more than 645,200 as of June.
Total contributions grew 8.5% year-on-year to RM33.87bil in 2Q26.
For 1H26, voluntary contributions rose to RM14.15bil, while i-Saraan contributions increased 15.7% to RM1.33bil.
The number of formal-sector members contributing above statutory rates through i-Topup also rose 13.9% year-on-year to nearly 204,450.
Assistant manager of research at iFast Capital Kevin Khaw concurred with EPF’s guarded approach heading into 2H26, based on a moderating macroeconomic backdrop, softer underlying earnings momentum and domestic political uncertainties that could constrain further market re-rating.
He said full-year consensus FBM KLCI earnings growth is forecast at 6% to 8%, while the strong 1Q26 headline figure was partly inflated by a sizeable one-off gain in the listing of Sunway Healthcare Holdings Bhd, suggesting a less exceptional earnings trajectory ahead.
“Moreover, Bank Negara Malaysia’s 4% to 5% full-year growth forecast, despite the strong 2Q26 expansion, points to some economic moderation amid geopolitical and external cost risks,” he told StarBiz.
The silver lining, said Khaw, is that Malaysia’s structural fundamentals including resilient domestic demand, artificial intelligence-related electrical and electronic exports, data-centre expansion, infrastructure investment and capital deployment led by government-linked investment firms remain intact, although these may require time to translate into broader corporate earnings.
“Investors should, therefore, retain selective domestic exposure while diversifying towards quality global market leaders with stronger earnings visibility and broader geographical revenue exposure.
“Our year-end target for the FBM KLCI is 1,750 points,” he said.
For the fixed income market, head of dealer sales for Asia-Pacific at MarketAxess Roheet Shah said the two-seven year sector has been one of the most stable areas of the ringgit curve, with buy and sell skews remaining tightly range-bound throughout the year.
“The seven-to-10-year segment exhibits a similar pattern.
“Flows have oscillated between modest buying and selling, but without establishing a sustained directional trend.
“This type of activity is typically indicative of active two-way participation from both real money and hedge fund accounts, with investors expressing relative value views and portfolio allocation decisions rather than outright duration calls,” he said.
Despite supportive fundamentals, Roheet said there has been limited evidence of aggressive extension into the long end of the curve, as activity in the 10 to 20 year, 20 to 30 year and ultra-long sectors has generally remained muted, suggesting investors continue to approach duration exposure with a degree of caution.
That caution is understandable, he pointed out, as global investors continue to navigate uncertainty around the path of US interest rates, China’s growth trajectory, tariff developments and ongoing geopolitical risks.
“Against that backdrop, many appear comfortable maintaining exposure to Malaysia while remaining selective about extending too far out the curve,” Roheet added.
