KUALA LUMPUR, 7 October 2022: The Employees Provident Fund (EPF) recorded a total investment income of RM27.00 billion for the first half of the year ended 30 June 2022 (1H 2022), a decrease of RM7.06 billion, or 21%, compared to RM34.06 billion in the corresponding period in 2021, arising from the market reaction to the elevated risk of both slower global growth and high inflation, not experienced by major economies since 1970s.  Underlying these risks include the protracted Ukraine-Russia conflict, which disrupted global supply chains that sent prices soaring; rise in global inflation rates, hitting multi-decade highs; and in-step interest rate hikes by numerous central banks, partly in response to US Federal Reserve rate hikes and partly to reel in inflationary pressures.

These risks had been flagged at the beginning of the year, but the rate at which they materialised was unprecedented, like the magnitude and speed of US Fed rate hikes. All these factors had intensified and resulted in most markets posting their worst first half of a year in decades, with US stocks recording their worst in more than 50 years.

Not insulated from global market events, the EPF’s total gross investment income for the second quarter (Q2 2022) was RM11.14 billion, down RM3.63 billion from RM14.77 billion recorded in the same quarter last year. Equities continued to be the main contributor of income for Q2 2022 at RM4.88 billion, accounting for 44% of the total gross investment income in the quarter under review.

EPF Chief Executive Officer Datuk Seri Amir Hamzah Azizan said, “Expectations of global growth have suffered which caused a persistent sell-off in the global markets. The consistent downtrend impacted EPF’s equity earnings especially through global stock markets, which declined between 17% and 21% during the 1H 2022.  Nonetheless, the EPF’s diversification into different asset classes, markets and currencies, as prescribed in its Strategic Asset Allocation (SAA), has helped the EPF to remain resilient against turbulent market conditions and to protect its long-term investment returns.”

Private Equity which is part of the Equities asset class has managed to deliver healthy returns of RM1.15 billion, an increase of over 100% against RM0.54 billion recorded in Q2 2021. This portfolio is gradually becoming more important for the EPF’s diversification efforts as the volatility in listed equity markets remained high.

Fixed Income instruments, comprising Malaysian Government Securities and Equivalent, as well as Loans and Bonds, continued to provide a steady stream of income, mitigate the impact from short-term market volatility and provide stability to the EPF’s overall income. This asset class that serves a capital preservation role has been the anchor for the EPF and contributed a significant portion of gross investment income for Q2 2022, at 42% of total income or RM4.73 billion.

Real Estate and Infrastructure registered an income of RM1.20 billion, while income from Money Market Instruments generated RM0.33 billion, in line with the return expectations set for these asset classes.

In Q2 2022, the EPF’s overseas investments, which makes up 36% of EPF total investment assets, generated RM5.51 billion in income, representing 49% of the total gross investment income recorded.

 
A total of RM1.16 billion out of the RM11.14 billion gross investment income was generated for Simpanan Shariah in Q2 2022, and RM9.98 billion for Simpanan Konvensional. Simpanan Shariah derives its income solely from its portion of the Shariah portfolio while income for Simpanan Konvensional is generated by a share of both the Shariah and Conventional portfolios.

Taking into account the effect of the RM2.15 billion that was written down for listed equities during the quarter, the EPF’s total investment income in Q2 2022 was RM8.98 billion. Cost Write Down is an internal policy adopted by the EPF on its Listed Equity investment as a prudent measure to ensure the health of its portfolios.

As at June 2022, the EPF’s assets under management were RM957.25 billion, taking into account the pandemic-related withdrawals amounting to RM44.6 billion. However, the EPF’s asset growth remained healthy as contributions received amounting to RM43.23 billion as at June 2022 supported by the income generated from its investments. 

Capitalising on Malaysia’s steady rebound
The EPF is keeping a positive outlook on the home front and believes that Malaysia’s economic recovery would continue further for the remainder of 2022, following stronger GDP growth of 8.9% for the second quarter. The latest economic data points also signal a strong likelihood that Malaysia’s full year growth would settle at the upper range of the official forecast of between 5.3% and 6.3% in 2022. 

Nonetheless, the EPF remains cautious of key risks that continue to rattle markets and investor sentiment such as soaring global inflation rates, geopolitical tensions and tightening of monetary policies. Crude oil prices have witnessed a decline amid the growing threat of an economic recession. Further aggressive interest rate hikes by central banks are also expected to slow economic growth and impact equity and fixed income markets.

“Markets are still very volatile, and while we are deeply concerned by these developments, we maintain our long-term and balanced approach in our investment decisions as there are pockets of opportunities which we can capitalise on during this challenging time,” said Datuk Seri Amir Hamzah. 

“As a retirement fund, the EPF’s overarching strategy focuses on long term sustainability of our investments and returns. We will take all necessary measures to ensure our financials remain strong and resilient to be able to withstand any volatility risks and short-term challenges.”

Recovery fuels employment growth, increases membership coverage
The rapid recovery in labour market conditions also helped fuel domestic growth, with the number of employed persons increasing 3.2% to 15.7 million persons¹. This has helped the EPF increase its membership coverage and encourage members to voluntarily contribute above the statutory rate to augment their retirement savings.

The EPF membership showed a gradual and stable growth over the past five years with CAGR of 2.0%. This was attributed to the strong growth of new member registrations of 177,230 in the second quarter of 2022 to a total of 323,416 for the 1H 2022, adding to the total number of EPF members as at June 2022 of 15.5 million. Out of that amount, a total of eight (8) million were active members², the highest recorded in the last five years, from  7.2 million in 2018. Imputed wages of active members also reflected the economic recovery, with median wages averaging 6% growth in the 12 months to June 2022. Wage growth was broad based across the income spectrum of active members.

The take-up rate for both EPF voluntary contribution programmes have also shown significant improvement compared to last year. i-Saraan new registrations have increased from 17,142 in 1H 2021 to 311,028 in 1H 2022, while Kasih Suri Keluarga Malaysia KWSP new registrations increased from 1,521 to 33,875 during the same period. i-Saraan is a voluntary contribution programme designed to allow workers in the informal sector or with no formal income to save for their retirement with the EPF, whereas Kasih Suri Keluarga Malaysia KWSP is an incentive catering specially for housewives registered under the e-Kasih Programme to save with the EPF for their future wellbeing.

Employer data at the EPF also gave evidence of the strong rebound in economic activity. Growth of new employer registrations recorded the strongest in five years at 50,429 in the first six months of this year. Until June 2022, the number of active employers reached 572,847.

“Operationally, we remain focused on rebuilding the retirement income adequacy of our members and expanding coverage through our strategic initiatives encompassing financial literacy education as well as products and services enhancement,” said Datuk Seri Amir Hamzah.
 

* Contributions from Malaysian Government Securities & Equivalent, Loans and Bonds

Issued by the EPF Media Desk 
Corporate Affairs Department
7 October 2022