Withdrawals from EPF pose modest negative impact on AUMs

WITHDRAWALS from the Employees Provident Fund (EPF) through facilities such as i-Sinar would have a modest negative impact on assets under management (AUMs), but would not pose a dislocation event for the domestic capital market.

Maybank Kim Eng head of regional equity research Anand Pathmakanthan said the withdrawals were more impactful in the last two quarters, but the retirement fund would be able to cushion that, especially with substantial money market buffers in its portfolio.

The EPF’s AUMs have continued to increase to almost the RM1 trillion mark, he noted.

“If we look at the EPF’s investments make-up, there are always substantial money market buffers in their portfolio.

“They will invest 30% in equity, 40% in fixed income, 20% in properties, but always 5%-7% in the money market instruments, which is highly liquid and substantial at about RM70 billion the last time we checked,” he said during a webinar on Maybank Kim Eng’s “Captain Speak: Will Taper Tantrums Spook Asean Again?” yesterday.

Anand noted that there is always liquidity to cushion the impact of the current withdrawals stress.

“If you are asking me whether the EPF has to go into the fixed income market and start selling down holdings, that is definitely not something we would expect them to do,” he pointed out.

Meanwhile, Maybank Kim Eng reiterated that the FTSE Bursa Malaysia KLCI is projected to hit 1,830-level by end-2021, with forecast earnings recovery to be robust and broad-based following a resilient, positively-biased reporting season in the fourth quarter of 2020 (4Q20).

“In terms of 2021 earnings forecast, we are looking at a very punchy 50% recovery in earnings this year. Now, there is some bias and a lot of this would come from the glove sector,” said Anand.

The investment bank also noted that the market is expected to play catch-up from 2Q21 on accelerated vaccinations, expected strong economic growth, rising commodity prices, earnings delivery and asset reallocation flowing out of fixed income as inflation/yields push higher. — Bernama