by ALIFAH ZAINUDDIN/ pic by MUHD AMIN NAHARUL

THE Employees Provident Fund’s (EPF) investment income continued to moderate in the third quarter (3Q) ended Sept 30, 2019, with a 7.6% drop to RM13.5 billion from a year ago on weakening market conditions and ongoing uncertainties from the US-China trade war.

EPF deputy CEO for investment Datuk Mohamad Nasir Ab Latif (picture) said its domestic equity portfolio, which posted an income of RM2.57 billion or about 20% of its total investment returns, was impacted by slow earnings growth.

“Emerging markets continued to feel the heat from the escalating US-China trade war. Asian markets remained volatile, with Hong Kong’s stock market being the weakest,” he said in a statement last Friday.

As for the Asean region, he added that Singaporean and Thai equity markets underperformed, Indonesia’s market came under pressure from a strong US dollar, while China’s was only prevented from weakening further by Beijing’s stimulus measures.

“We had to work through a challenging market environment, including a weakening Kuala Lumpur Composite Index. Fortunately, our diversified portfolio, which includes investment income from overseas assets, helped mitigate some of the impact,” Mohamad Nasir said.

The pension fund’s portfolio comprises equities (38% of total investment asset); fixed-income instruments comprising contributions from the Malaysian Government Securities and their equivalent, loans and bonds (51%); money market instruments (6%); and real estate and infrastructure (5%).

Equities remained the largest contributor to the investment income at RM7.47 billion, representing 55% of total income, followed by fixed-income instruments (RM5.33 billion), money market instruments (RM450 million), and real estate and infrastructure (RM250 million).

Mohamad Nasir said deteriorating trade conditions not only affected equity markets, but also caused economic slowdown globally, with export-reliant nations in the region such as Malaysia, Singapore and Thailand being the most impacted. Malaysia’s consumer confidence level recently fell to its lowest in two years on lower purchasing power and a weak job outlook.

“The rising geo-political risks are expected to continue to add pressure on the global economy. We are cautious about the Malaysian economy’s growth outlook.

“If trade tensions between the US and China continue, there will be knock-on effects on trade-dependent economies like ours,” he said.

Describing 2019 as a difficult year, Mohamad Nasir expects near-term market uncertainties to continue. “The EPF’s performance reflects these uncertainties and our outlook for the market remains cautious and prudent,” he said.

However, he assured that the EPF will continue to leverage on good buying opportunities that will arise during any market downturn.

“Volatility also provides EPF with an opportunity as we are always on the lookout for assets with sound fundamentals and good cashflow that can add long-term value to our portfolio. As a long-term fund, our concern has always been to achieve long-term results,” he said.

The EPF’s assets under management stood at RM833.76 billion as at end-2018. Since the late 2000s, the fund has set its sights on overseas investment as it looks to diversify its holdings and strengthen its portfolio of long-term assets.

Foreign investments across asset classes contributed 37.52% to the fund’s gross investment income last year, which amounted to RM50.88 billion. It currently invests in 40 countries, with its overseas portfolio totalling RM222.61 billion.