KUALA LUMPUR, 11 October 2022 — Gross investment income dropped from RM14.77 billion to RM11.14 billion in the second quarter of 2022 (2Q22), according to the Employees Provident Fund (EPF).
According to EPF Chief Executive Officer, Datuk Seri Amir Hamzah Azizan, the market’s response to the increased risks of slower global economic growth prospects and high inflation, a situation not experienced by major economies since the 1970s, caused a decline in EPF’s global equity investment earnings.
“Underlying these risks are the protracted conflict between Ukraine and Russia, which has disrupted global supply chains and driven up prices; the rise in global inflation rates and the parallel increases in interest rates by many central banks, partly in response to rate increases by the US Federal Reserve and partly to quell inflationary pressures.
The rate at which these risks materialised was unprecedented, comparable to the size and pace of US Fed (United States Federal Reserve) rate rises, he said in a statement this evening. These risks had been identified at the beginning of the year.
He emphasised that these conditions have worsened, causing major markets to register their worst first six months of the year in decades, with US equities marking their worst in more than 50 years.
Equities, which contributed RM4.88 billion or 44% of the total gross investment income for the quarter under review, continues to be the major source of revenue for this quarter, according to Amir.
“Global markets have been seeing a sustained sell-off as expectations of growth have been lowered.” The ongoing downturn had an effect on EPF’s equity profits, particularly through the global stock markets, which fell between 17% and 21% during the first half of 2022.
However, he said, “the EPF’s diversification across several asset classes, markets, and currencies, as specified in its strategic asset allocation (SAA), enables EPF to stay robust against choppy market circumstances and to secure its long-term investment returns.”
Private equity, a subset of the equity asset class, managed to generate good returns of RM1.15 billion, a rise of over 100% from RM0.54 billion reported in Q2 2021, according to Amir.
The volatility in listed equities markets is still significant, thus this portfolio is progressively playing a bigger role in the EPF’s attempts to diversify, he added. He said that fixed income securities, such as loans, bonds, and Malaysian Government Securities (MGS) and comparable, continued to produce a consistent stream of income, lessen the effects of short-term market volatility, and stabilise EPF’s total income.
This asset class, which plays a crucial role in capital preservation, has served as the EPF’s compass and provided a sizable amount of gross investment income for Q2 2022, at 42% of total income or RM4.73 billion.
Amir said that its foreign investments, which account for 36% of total EPF investment assets, earned RM5.51 billion in revenue, accounting for 49% of total gross investment income reported. “In Q2 2022, Simpanan Shariah contributed RM1.16 billion of the RM11.14 billion gross investment income, while Simpanan Konvensional generated RM9.98 billion.”
“Simpanan Shariah generates revenue purely from its Shariah portfolio, whereas Simpanan Konvensional generates income from both the Shariah and conventional portfolios,” he explained.
Amir guaranteed that the EPF has a good perspective on the domestic front and expects that the country’s economic recovery will continue for the rest of 2022, following better GDP growth of 8.9 percent in the second quarter.
“The newest economic data points also indicate a significant possibility that Malaysia’s full-year growth would settle at the upper end of the official predicted range of 5.3% to 6.3% in 2022,” he added.
Amir, on the other hand, stated that the EPF remained wary of significant risks that continue to unsettle markets and investor mood, such as rising global inflation rates, geopolitical tensions, and monetary policy tightening.
“Crude oil prices have fallen as the possibility of an economic recession grows.” Further aggressive rate rises by central banks are also projected to hinder economic development and have an impact on stock and fixed income markets.
“Markets are extremely volatile, and while we are gravely disturbed by these events, we continue our long-term and balanced approach in our investment selections because there are pockets of opportunity that we may capitalize on during this difficult time,” he added. He also highlighted that the quick improvement in labour market circumstances has also aided domestic growth, with the number of employed people rising by 3.2% to 15.7 million.
“This has assisted the EPF in expanding its membership coverage and encouraging members to pay above the required amount to supplement their retirement savings.” Over the last five years, the EPF membership has grown gradually and steadily, with a CAGR (compound annual growth rate) of 2.0%.
“This was related to the robust increase of new member registrations of 177,230 in the second quarter of 2022 to a total of 323,416 for the first half of 2022, adding to the overall number of EPF members of 15.5 million as of June 2022,” he added.
Amir stated that eight million of those were active members, the most in the previous five years, up from 7.2 million in 2018. “Imputed salaries of active members also mirrored the economic recovery, with median pay increasing by 6% in the year to June 2022.” “Wage rise was widespread throughout the socioeconomic spectrum of active members,” he explained.
According to Amir, the participation rate in both EPF voluntary contribution programmes has increased significantly since last year. He stated that i-Saraan new registrations climbed from 17,142 in the first half of 2021 to 311,028 in the first half of 2022, while Kasih Suri Keluarga Malaysia KWSP new registrations went from 1,521 to 33,875 over the same period.
Saraan is a voluntary contribution scheme designed to allow informal sector workers and workers without formal income to save for retirement with the EPF. Meanwhile, Kasih Suri Keluarga Malaysia KWSP is an incentive specially designed for housewives who registered under e-Kasih program in which they can save with the EPF for their financial future.
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