By Lee Heng Guie
THE Employees Provident Fund’s (EPF) investment diversification strategy continues to pay off as the retirement fund has posted its highest quarterly gross investment income of RM19.29 bil for 1Q 2021 – a stellar jump of 58.63% year-on-year from RM12.16 bil a year ago.
This is also an increase of 17.84% quarter-on-quarter when compared to RM16.37 bil for 4Q 2020.
The equities asset class was the largest contributor which accounted for RM14.28 bil or 74% of the gross investment income while fixed income instruments contributed a stable income of RM3.92 bil.
The 1Q 2021’s gross investment income returns are indeed a good start for the EPF’s performance amid the continued on-going uncertainties about the COVID-19 pandemic on the domestic economy.
From a global macro perspective, the global economy is shaping up for stronger recovery this year with the US and China leading the pack.
Global equity markets continue to ride on steady strides, taking cue from the sustained economic recovery in the US market, underpinned by positive corporate news flow.
Challenges at home
On the domestic front, the full movement control order’s (FMCO) deeper scarring effects are expected to weigh down on the earlier anticipated stronger gross domestic product (GDP) growth in 2Q 2021 while dampening cautious investors’ sentiment in domestic equities.
Foreign institutional investors have remained net sellers of domestic equities while local retailers sustained their buying interests. This is despite foreign investors are still placing their bet on the Malaysian bonds owing to stable returns.
The sustainability of the EPF’s investment performance in the next three quarters of this year will depend on the following:
- The future path of the COVID-19 pandemic, the level of infections and the speed of vaccination to manage the virus spread: A prolonged pandemic situation and stricter movement restrictions would temper domestic GDP growth trajectory in 2H 2021, hence, corporate earnings of some domestic-sales oriented industries.
Export-oriented industries such as the technology sector, rubber-based products, wood products, commodities as well as the oil & gas (O&G) industries including chemical products, are expected to sustain their performance on firmer global demand and prices.
Lingering political uncertainty remains an on-going concern that dampened foreign investors’ sentiment in putting their money on domestic equities.
- Rising US inflation: Amid the US Federal Reserve having downplayed the view that rising inflation is transitory due to low base effect and supply chain bottleneck, market consensus is that the Fed will start tapering this summer and start reducing before the end of the year.
If the Fed starts to taper its daily bond purchases, rising yields would shatter the appeal of emerging markets, including Malaysia, causing volatility in their currencies, bonds and shares. – June 10, 2021
Lee Heng Guie is the executive director of the think-tank, Socio-Economic Research Centre (SERC).
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
