Fund makes the forecast after momentum slows down in second quarter
The Employees Provident Fund (EPF), which reported a strong set of financial results in the second quarter, expects a moderate income growth in the upcoming quarters.
“While we recorded significant improvements in year-on-year performance in both the preceding and current quarters, there is a slowdown in momentum which saw corporate profits normalising in the second quarter of 2017.
“We therefore expect a moderation in income growth in upcoming quarters,” chief executive officer Datuk Shahril Ridza Ridzuan says in a statement.
Commenting on the outlook for the second half of the year, he says with the ringgit showing signs of improved stability, global investments would remain one of EPF’s significant revenue drivers going forward.
“Domestically, while gross domestic product (GDP) growth continues to improve, the EPF will be vigilant of other external factors which may create uncertainty, including the possibility of global rate hikes, and rising geopolitical tensions,” he adds.
The pension fund reported a 36.36% increase in its income to RM11.51bil in the second quarter ended June 30, 2017 (Q2’17) from RM8.44bil a year ago due to better performance of the equities market.
“Market conditions have improved from a year ago and all asset classes in our portfolio have recorded healthy year-on-year growth, with equities continuing as the main profit driver for the quarter under review,” he says.
In accordance with Malaysian Financial Reporting Standards (MFRS 139), the EPF recorded lower net impairment of RM1.34bil in the second quarter, an improvement of RM2.28bil or 62.98% from RM3.63bil, in line with the better performance of the equities market.
From the RM11.51bil investment income recorded, fixed income instruments contributed 37.29%, equities contributed 53.72%, while real estate and infrastructure and money market instruments contributed 6.23% and 2.64% respectively.
Equities, which made up 41.96% of EPF’s total investment assets as at Q2’17, contributed RM6.18bil of income, 61.45% higher than RM3.83bil recorded in the corresponding quarter in 2016.
The pension fund has also benefited from diversification into other asset classes that provide stable streams of income, including fixed income instruments and real estate & infrastructure investments through its subsidiaries.
A total of RM820.71mil out of the total investment income of RM11.51bil was generated for Simpanan Shariah, while RM10.69bil was generated for Simpanan Konvensional.
Simpanan Shariah derives its income solely from its portion of the Shariah assets. Income for Simpanan Konvensional is generated by its share of both Shariah and non-Shariah assets.
“In equities, the banking sector has been outperforming since the beginning of the year while the bulk of our impairments recorded for the quarter came from the telecommunications and oil and gas sectors.
“If this continues, we expect that Simpanan Konvensional will benefit from the former and outperform in the short term,” Shahril says.
The value of EPF investment assets rose 3.92% to RM759.78bil from RM731.11bil as at Dec 31, 2016.
Out of the total investment assets, RM362.5bil, or 47.71%, were in syariah-compliant investments and the balance were invested in non-syariah assets.
As at June 30, 2017, the EPF’s overseas investments, which accounted for 29% of its total investment asset, contributed 32.5% to the total investment income during the period under review.
“Our foreign investments have proved to be a significant revenue driver in recent years, despite making up less than 30% of total investment portfolio as at Q2 2017.
“The increase in global asset values mitigated the negative effect from the strengthening of the ringgit, providing opportunities for us to realise profit,” Shahril says.
> Q&A with EPF