Wong Chen: Massive EPF withdrawals can adversely affect national bond market

TARGETED withdrawals from the Employees’ Provident Fund (EPF) – if implemented excessively – can have adverse impact on the national bond market.

In two-term Subang MP Wong Chen’s view, if the retirement fund which is one of the largest investors in the local bond market let slip its position, this will increase the risk of local bonds falling into the hands of foreign investors.

“EPF is a fairly large buyer of government bonds (Malaysian Government Securities [MGS]) which proceeds is used for government development expenses,” the member of the Parliamentary Special Select Committee on Finance and Economy told political news portal Harapan Daily.

“If the EPF does not have enough funds, these bonds will be sold to foreign investors and this will unduly increase the risk of bonds being in the hands of foreign investors.”

Earlier, Prime Minister Datuk Seri Anwar Ibrahim had during his weekly PM Question Time (PMQT) session, reiterated the stance of the unity government to disallow the withdrawal of EPF savings by its members because this would have an adverse impact on account holders upon their retirement.

For the record, EPF targeted production has been used as a political weapon by the Perikatan Nasional (PN) camp to pressure the unity government ahead of the state polls slated for late June or July this year.

Wong Chen who is also PKR’s policy director went on to explain that EPF has to prioritise the interests and future well-being of its members as well as in ensuring that he retirement fund has ample financial resources to maintain its performance in the future.

Henceforth, if any round of targeted withdrawal is allowed again, EPF will have to sell its bond holdings on a large scale domestically and abroad amid an uncertain market situation.

“So, this policy (not allowing targeted withdrawal) also has a positive impact on government bond risk control,” justified the former corporate lawyer. “Moreover, any additional withdrawals would impact the EPF’s finances and weaken the current portfolio position, thus EPF’s ability to generate sustainable returns.’

As of end-December 2022, EPF recorded a lower total gross investment income of RM55.33 bil compared to RM68.89 bil in 2021, driven by high market volatility and lower valuations across equity and fixed income markets.

The 2022 financial year also saw the fixed income market failing to record a good performance when many bond indices recorded negative returns during the year largely due to high bond yields following continued hikes in interest rates by the US Federal Reserve.

Above all else, EPF has acknowledged that managing the targeted withdrawals was a difficult challenge for the fund given the need to ensure sufficient liquidity.

“Despite the numerous macroeconomic challenges and the pandemic related withdrawals totalling RM145 bil, the EPF’s investment assets remained intact and closed at RM1.003 tril in December 2022,” noted the retirement fund in a statement in conjunction with its end-2022 financial performance.

“Even as the EPF successfully navigated through the situation, the cash outflow limited the EPF’s ability to take advantage of investment and profit opportunities for the benefit of all members.” – April 4, 2023

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