Investment income continue to grow albeit at slower pace
KUALA LUMPUR, 5 September 2018: The Employees Provident Fund (EPF) today reported an increase in quarterly total investment income to RM12.39 billion for the second quarter ended 30 June 2018 (Q2 2018), a year-on-year increase of 7.64 per cent from RM11.51 billion recorded during the same period last year.
EPF Deputy Chief Executive Officer (Investment) Dato’ Mohamad Nasir Ab Latif said, “The escalating US-China trade tensions and the US interest rate hike contributed to capital outflows from emerging markets, including Malaysia. This resulted in a less favourable trading environment in the domestic market.
“While some developed markets, including the US and Eurozone countries, recorded gains in their equity markets, the emerging markets, which include Asia, recorded negative returns. As ASEAN was one of the worst performer, Malaysia was not excluded from the market downturn. Nonetheless, the diversification into different markets and sectors has enabled the EPF to record consistent performance with equities emerging as the main contributor during the second quarter.”
In Q2 2018, Equities, which made up 40.61 per cent of the EPF’s total investment assets, contributed RM7.98 billion, representing 64.44 per cent of total investment income for the quarter.
A total of 50.09 per cent of EPF’s investment assets were in fixed income instruments, which continue to provide consistent and stable income. The second quarter saw fixed income investments record an income of RM4.09 billion, equivalent to 33.07 per cent of the quarterly investment income.
Income from Malaysian Government Securities (MGS) & Equivalent in Q2 2018 increased to RM2.40 billion. Loans and Bonds generated an investment income of RM1.70 billion.
Investments in Money Market Instruments, which represent 2.53 per cent of the total investment assets, contributed RM215.44 million to the investment income.
During the quarter under review, Real Estate & Infrastructure recorded RM91.73 million in investment income. This asset class continues to provide the EPF with an inflation headged return with more income expected to come in the later part of the year.
In accordance with the implementation of the Malaysian Financial Reporting Standards 9 (MFRS 9), which came into effect beginning 1 January 2018, capital gains on disposal of equity amounting to RM3.79 billion for the Q2 2018 will flow directly to Retained Earnings from the Statement of Other Comprehensive Income, as opposed to the Statement of Profit or Loss under the previous MFRS 139. In addition, under MFRS 9, the EPF would no longer recognise any impairment on its equity holdings.
The value of EPF investment assets reached RM813.18 billion, which was a 0.38 per cent or RM3.05 billion increase, from 31 December 2017, but a marginal decline from the first quarter of 2018 due to the drop in equity markets. Notwithstanding the quarterly decline, the EPF’s asset position remains healthy compared to members’ savings balance of RM780.07 billion. Out of the total investment asset, RM322.89 billion, or 39.71 per cent, were in Shariah-compliant investment while the balance were invested in the conventional portfolio.
A total of RM1.09 billion out of the RM12.39 billion gross investment income, was generated for Simpanan Shariah and RM11.30 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 its share of both Shariah and conventional portfolios.
As at end June 2018, the EPF’s overseas investments, which accounted for 26.50 per cent of its total investment asset, contributed 38.30 per cent to the total investment income during the quarter under review.
Commenting on the outlook for the second half of the year, Dato’ Mohamad Nasir said, “Global market uncertainty continues to shroud the outlook for the rest of the year given the continued political and policy risks such as the impending changes to monetary policies, uncertainty over the outcome of Brexit and the ongoing trade tensions between major trading nations.
“On the domestic front, the outlook is likely to turn favourable with easing foreign outflows and clearer policy direction from the new Government. The EPF remains focused in delivering above-inflation returns, with at least two (2) per cent above the inflation rate over a three-year rolling period, which will preserve and enhance the value of our members’ retirement savings.”
The Employees Provident Fund (EPF) is Malaysia’s premier retirement savings fund to help its members achieve adequate savings for a comfortable retirement. This is in line with EPF’s vision to help members achieve a better future and the mission to safeguard members’ savings and deliver excellent services. The EPF has evolved significantly from transaction-centric to a professional fund management organisation with a strong focus on retirement security. The EPF is guided by a robust and professional governance framework when making investment decisions. It continues to play a catalytic role in the nation’s economic growth and seeks to cultivate a savings and investment culture among its members to improve the country’s financial literacy level.