EPF Taking Cautious Stance to Rebuild Members’ Savings
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As it focuses on preserving growth and replenishing members' savings, the Employees Provident Fund (EPF) will take a careful approach to navigate the downside risks connected with the post-pandemic recovery and the war in Ukraine.
Inflationary concerns, supply chain disruptions, and tightening monetary policy by major central banks, according to CEO Datuk Seri Amir Hamzah Azizan, are likely to continue to impact both the equity and bond markets.
In a statement today, he said that the EPF would continue to realign the fund's positions in fundamentally good but undervalued stocks.
EPF to rebuild its savings and maintain growth
He also stated that the EPF's fund performance and support of the domestic capital market are critical to Malaysia's economic growth as one of the cornerstones of the country's socioeconomic and social security system.
Amir Hamzah stated that the four pandemic-related withdrawal facilities – i-Lestari, i-Sinar, i-Citra, and Special Withdrawal – had supported members during the pandemic. Now that the country had reached the endemic phase, it would focus on aiding members in rebuilding their savings.
"In addition to prioritising members' interests and future wellbeing, the EPF also needs to ensure it is able to perform going forward.
"Any further withdrawals would financially impact the EPF and weaken the fund's current portfolio position and capacity to ensure sustainable returns," he stated.
He also stated that the EPF would work to maintain the health of its finances and globally diverse portfolio, led by its Strategic Asset Allocation, to ride out volatility in favour of its long-term portfolio objectives.
Economists predict EPF to distribute reduced dividend rate this year
Economists anticipate that the EPF will distribute a reduced dividend rate in 2022 as a result of lower overall investment income in the first quarter ended March 31, 2022 (Q1 2022).
Due to a large decline in global markets, the pension fund's total investment income fell to RM15.85 billion in Q1 2022, down from Q1 2021's RM19.29 billion.
Sunway University economist Yeah Kim Leng said to Bernama that the dividend rate of the EPF is projected to drop in tandem with lower investment income.EPF, one of the world's oldest and largest retirement plans, declared a dividend rate of 6.10% for conventional savings and 5.65% for Shariah savings last year.
Yeah predicted that the Russian-Ukraine conflict would be prolonged and that inflation and interest rate hikes, such as the 75 basis point increase by the US Federal Reserve, would cause global growth estimates to be revised downwards.
Furthermore, he stated that the possibility of a recession is being raised as the United States attempts to control excessive inflation.
He said that if it can manage a soft landing and China can restart normal operations despite its zero-COVID policy, investment income may hold up to enable a decent dividend, which will most likely be lower than last year.
Downgraded growth in global markets
Similarly, Geoffrey Williams, an economics professor at Malaysia University of Science and Technology (MUST), said he did not expect the substantial dividend for 2021 to be repeated in 2022, as the EPF had signalled due to the general investment environment.
According to him, the overall EPF dividend performance last year was aided by a significant return in the equity markets. However, Williams said that growth in 2022 has already been downgraded globally, therefore, investment returns are likely to be lower.
Meanwhile, Yeah stated that the poorer Q1 performance was predicted as a result of the turmoil in the global financial, food, as well as energy markets induced by the Russia-Ukraine crisis.
He said that solid increases in inflation and interest rate hike expectations also roiled financial markets. Williams, on the other hand, stated that the Q1 result was unexpected but not shocking given the general market instability during the quarter under review.
The total investment income of EPF as of December 31, 2021, increased by 6% to RM67.06 billion from RM63.45 billion in 2020, owing to the gradual recovery of equity markets and most asset classes throughout the global recovery.