Good EPF dividends seen amid Covid-19 withdrawal

by PRIYA VASU & NUR HANANI AZMAN / pic by TMR FILE

THE Employees Provident Fund (EPF) announced a nine-month profit of RM48.02 billion yesterday amid massive withdrawals for Covid-19 relief, low fixed-income returns and weak domestic stock market.

Analysts said this reflected the quality of fund management on the back of the RM101 billion contributors withdrew from their EPF accounts under the government’s Covid-19 mitigation programme last year and are optimistic of a good 2021 dividend.

Malaysian University of Science and Technology’s Institute of Post-graduate Studies dean Dr Geoffrey Williams said, however, the result of these withdrawals have left more than six million EPF members having less than RM10,000 in their retirement accounts. In fact, 3.6 million members now have less than RM1,000 in accounts.

But overall, the health of the fund is intact with a slight risk that its total assets may be below the RM1 trillion mark for 2021.

“Total EPF investment assets were RM988.55 billion compared to RM941.77 billion last year. So, assets have increased by just under 5% in the period, even in the face of significant withdrawals,” said Williams.

“But good investment management has proven EPF to be robust to the Covid-19 pandemic and the withdrawals policy.

“Part of this is an increase in overseas investments which amounted to 36% compared to 32% the year before. This makes sense given that international equity markets have performed much better than Bursa Malaysia during 2021,” he said.

Sunway University Business School professor of economics Dr Yeah Kim Leng said contributors can expect favourable dividend payout for 2021 given the better performance of the economy in the fourth quarter.

“While there is nearly a 20% drop in gross investment income (GII) in the third quarter of 2021 (3Q21) compared to 3Q20, which is worse than expected, the 7.7% year-on-year rise for the first nine months of 2021 (9M21) is commendable.

“Despite concerns over the negative impact of over RM100 billion withdrawals under the Covid-19 stimulus packages on the fund performance, the positive results have helped to allay those concerns,” Yeah said.

In its announcement, EPF said it made RM48.02 billion total GII for 9M21, an increase of 7.7% or RM3.42 billion, compared to the RM44.6 billion recorded for 9M20.

While its total GII for 3Q21 amounted to RM13.97 billion, it is lower than the RM17.33 billion recorded in 3Q20, EPF said in a statement yesterday.

“The 3Q21 has been volatile for equities in both the domestic and emerging markets, largely caused by the concerns surrounding rising inflation and interest rates.

“On the other hand, the continued recovery of equities in the developed economies amidst the heightened volatility has provided EPF the opportunity to capitalise additional gains,” said EPF CEO Datuk Seri Amir Hamzah Azizan.

Equities continued to be the main income contributor, accounting for 54% of total GII at RM7.5 billion.

As part of its internal policy and a prudent measure to ensure a healthy portfolio, RM0.11 billion was written down for listed equities during the quarter, compared to RM0.13 billion in the corresponding period last year.

After taking into account the cost write down, RM13.86 billion of net investment income (NII) was recorded for 3Q21.

Cumulatively, RM0.35 billion was written down for listed equities, down from the RM6.46 billion for the same period in 2020 on the back of continued recovery in the global equity market, resulting in NII of RM47.67 billion for 9M21, compared to RM38.14 billion for 9M20.

Investments in fixed income instruments contributed RM5 billion, or 36% to 3Q21 GII, which was lower than the RM8.18 billion GII generated in 3Q20, due to lower trading gains. This is in line with the higher market yield in 3Q21 compared to 3Q20.

“Continued inflationary pressure and aggressive shifts from central banks had led yields to increase during the quarter amid increased expectations for monetary policy tightening. The environment of increasing bond yields has not just impacted bond markets, but created unease in equities as well,” Amir Hamzah added.

Real estate and infrastructure, as well as money market instruments, contributed RM1.18 billion and RM0.29 billion, respectively.