The fund is able to record an improvement in income as Malaysian, Asean equities recovered in 3Q18 from market downturn
By LYDIA NATHAN / Pic By MUHD AMIN NAHARUL
The Employees Provident Fund’s (EPF) total investment income increased 12.82% to RM14.61 billion for the third quarter ended Sept 30, 2018 (3Q18), from RM12.94 billion a year ago.
EPF deputy CEO (investment) Datuk Mohamad Nasir Ab Latif said equities made up 40.67% of EPF’s total investment assets, contributing RM8.89 billion for the period, and have continued to be the main revenue driver.
“(The amount) is equivalent to 60.81% of total investment income for the quarter. During the quarter under review, dividend income has enhanced the performance of the domestic equity portfolios,” he said in a statement yesterday.
Mohamad Nasir added that the 3Q18 saw the retirement fund navigating a volatile market condition, which was fuelled by trade tensions between China and the US.
“However, we have been able to record an improvement in income as Malaysian and Asean equities recovered in 3Q18 from the market downturn experienced in previous quarters, while developed market equities continued to record positive growth from the previous quarter,” he said.
Mohamad Nasir also said volatility is increasingly being felt across the region, in which EPF saw a decline in regional equity markets for 4Q18, and will certainly pose a huge challenge for EPF to sustain the same income momentum for 4Q18.
Moving forward, he said EPF will remain cautious amid uncertain external environments such as the trade war, weaker commodity prices and the US interest-rate hike, as well as the challenging domestic equities market.
“We are grateful for the support of the Ministry of Finance (MoF) and Bank Negara Malaysia (BNM) towards EPF’s long-term global diversification efforts, which will greatly assist EPF in delivering its strategic targets of at least 2.5% nominal dividend and 2% real dividend on a rolling three-year basis,” he added.
Mohamad Nasir said a total of 50.72% of EPF’s investment assets were in fixed-income instruments, which include Malaysian Government Securities (MGS) and equivalent.
These instruments continue to provide consistent and stable income, reduce overall risk and protect against volatility of the fund’s portfolio — in line with the EPF being a balanced fund, he said.
In 3Q18, EPF registered an income of RM4.73 billion or 32.4% for its fixed-income investments.
“MGS increased to RM2.5 billion for the 3Q, while loans and bonds generated an investment income of RM2.24 billion,” he said.
During the period, real estate and infrastructure recorded RM726.23 million in investment income from RM91.73 million last year.
“This was due to a higher dividend income compared to the previous year,” he said.
He also said investments in money market instruments, which represents 3.92% of the total investment assets, contributed RM265.39 million.
“This asset class, which includes treasury bills, commercial papers, short-term certificates of deposit and repurchase agreements, among others, provides regular income payments and is vital in meeting EPF’s short-term liquidity needs,” he said.
Mohamad Nasir said in accordance with the implementation of the Malaysian Financial Reporting Standards 9 (MFRS 9), which came into effect beginning Jan 1 this year, capital gains on disposal of equity amounting to RM5.17 billion for the quarter would flow directly to retained earnings from the statement of other comprehensive income.
This was as opposed to the statement of profit or loss under the previous financial reporting standard, he said.
“In addition, under MFRS 9, the EPF will no longer recognise any impairment on its equity holdings,” Mohamad Nasir added.