EPF hit by global challenges

The Star

2 days ago

PETALING JAYA: Subdued global markets due to geopolitics and economic uncertainty led the Employees Provident Fund (EPF) to record a 13% year-on-year decrease in investment income in the first quarter of the (1Q25).
The retirement fund made total investment income of RM18.31bil in the period, compared with the RM20.99bil it recorded for the same quarter last year.
It's worth noting that the last time EPF recorded a lower investment income was in 1Q22, where RM15.85bil was recorded as opposed to the RM19.29bil recorded in 1Q21.
EPF chief executive officer Ahmad Zulqarnain Onn said the decrease in the latest quarter was due to global markets turning volatile early in the year from trade frictions and policy volatility.
'While the announcement of tariffs was made by the US administration on April 2, uncertainty surrounding US trade policies had begun to affect major stock markets throughout the quarter,' he said in a release yesterday.
Even as inflationary pressures in many economies began to moderate, the pace and timing of monetary policy easing differed across regions, thus dampening risk appetites.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid told StarBiz the decline in global equity markets, especially over US policies on trade, was likely the main contributing factor for a weaker period for the fund.
He said the 1Q25 numbers were hardly surprising since equity investments were EPF's main income driver, accounting for 59% of total income for the quarter.
'Nonetheless, we have seen global equities rebound during the month of May and perhaps it may continue in June,' he said. 'This may help the fund performance going forward.'
According to Ahmad Zulqarnain, EPF's diversified global portfolio cushioned the impact and kept the institution on course for long-term value creation.
Afzanizam agreed, saying well diversified portfolios have ensured EPF investment performance will continue to be mitigated through large exposure in the fixed income markets, constituting 48% of total assets that will act to ensure capital preservation.
'To some degree, it can also play a role as capital appreciation in light of the expected decline in global interest rates and the inverse relationship between bond prices and interest rate where bond prices will rise as interest rates go lower,' he said.
So, what can Malaysians expect for the rest of the year?
Afzanizam said there is bound to be some improvement in returns for the fund in the second half of this year.
EPF's performance will hinge on predominantly US trade policies particularly as the 90-day pause comes to an end in July.
'The situation is extremely fluid, concerns over US government finances along with elevated geopolitical risks will result in cautious sentiment in the global equities market,' he said.
Likewise, Rakuten Trade head of equity sales, Vincent Lau believes financial markets will rebound in the second half of this year.
He said as tariff tensions are being ironed out, there will be a higher chance that economies globally, including Malaysia's economy, will pick up and recover.
'We can expect the White House to come up with a statement of some sort soon, and by the time that happens, things will get better,' he said.
Despite some analysts cutting valuation on the FBM KLCI, Lau said bond yields have come down a little and even bitcoin is at an all-time high.
'This shows that people are still willing to take risks. To add to that, the EPF's portfolio is very diversified. Backed by last year's high dividends, there's a good chance for EPF to make a stronger comeback.'
Economist Geoffrey Williams said judging by how the FBM KLCI has somewhat recovered after the 90-day tariff pause, causing it to gain 13% in the middle of May – this however was not sustained.
Williams said the reason behind it was profit taking and continued uncertainty.
'So if the tariff issue improves, then there could be a rebound but Malaysian equities remain volatile,' he opined.
As for EPF's earnings results, Williams said both domestic and global market volatility impacted results.
However, he reckons a domestic focus on investments are holding back returns, thus more options for overseas investment would be better for EPF members.
During the period, international investments generated RM8bil or 44% of the total investment income.
EPF said its domestic investments, which account for 62% of total assets, have continued to provide long-term income stability through dividends, interest and profits from sukuk.
As of March 2025, EPF's total investment assets stood at RM1.26 trillion, with 38% invested internationally.
The FBM KLCI is down around 8% this year and has fallen around 14% since highs in 2018 so this is a long-term trend in domestic equities.
By contrast the Dow Jones is flat for the year so far having fallen around 16% from its peak in January to lows in April.
It has recovered some of its losses, its long-term performance is much better and it is up more than 75% since 2018.
Hence, overseas equity markets do offer better returns than local equities.
Meanwhile, as the International Monetary Fund has lowered its global growth forecast for this year to 2.8%, Malaysia's real gross domestic product growth forecast for 2025 is expected to be slightly lower than the original forecast of 4.5% to 5.5%.
The fund is prepared for this.
'In a more challenging and uncertain market environment, the EPF maintains a dynamic and well-diversified portfolio to help safeguard value and manage downside risks.
'We continue to actively explore investment opportunities across both domestic and international markets to strengthen our portfolio and support long-term, sustainable returns for our members,' Ahmad Zulqarnain concluded.
Of the total investment income, RM15.87bil was generated for Simpanan Konvensional and RM2.44bil for Simpanan Syariah.
The fund added it is committed to invest over 70% of its annual allocation in the domestic market. This reflects its role as a long-term investor and aligns with the government's Ekonomi Madani framework.
'Through the GEAR-uP initiative, the EPF is focused on building investment opportunities in the healthcare sector,' it added.