The Employees Provident Fund (EPF) has reported a quarterly investment income of RM8.44 billion for the second quarter (Q2 2016) ending June 30, 2016, a year-on-year decline of 26.04 percent from RM11.41 billion in Q2 2015.
Investment assets recorded an increase of 0.76 percent, or RM5.17 billion, to RM689.69 billion from RM684.52 billion as at Dec 31, 2015.
“Since late last year, EPF has been preparing itself for a challenging global and domestic environment,” said chief executive officer Shahril Ridza Ridzuan in a statement to announce the fund's Q2 2016 investment performance in Kuala Lumpur today.
The uncertainty was made worse by developments such as Brexit and continued low commodity prices, he added.
“We have seen and expect a further slowdown in global economies and increased volatility in equities. Markets saw lower valuations in share prices, particularly in the financial and oil and gas sectors, compared to the same quarter last year,” said Shahril Ridza.
Adopting prudent measures under the international accounting standards IFRS 139, Malaysia’s premier retirement savings fund has recognised non-cash impairments amounting to RM3.58 billion on its listed equity investments during the quarter under review, reflecting lower equity prices from a year ago.
On a gross basis, the quarterly investment income in Q2 2016 was RM12.07 billion, which was RM233.95 million higher compared with RM11.83 billion recorded in Q2 2015.
“However, as a prudent fund, we continue to recognise mark-to-market losses on our income statement while leaving gains on our balance sheet.
“This will ensure that our balance sheet remains healthy and allows us to take advantage of any market recovery. Impairments to present market values will allow us the opportunity to realise gains in the future,” said Shahril Ridza.
In Q2 2016, equities, which made up 40.94 percent of the EPF’s total investment assets, contributed RM3.83 billion, representing 45.37 percent of the total income in the quarter.
This was 45.03 percent lower from RM6.97 billion recorded in the corresponding period in 2015.
However, gross income before impairment from listed equities was RM7.46 billion, marginally higher than RM7.39 billion during the same period last year.
51.61pct of investment assets were in fixed income instruments
As at June 2016, a total of 51.61 percent of EPF’s investment assets were in fixed income instruments which continued to provide consistent and stable income to moderate the impact by the year-on-year decline in the equities market.
For the second quarter, fixed income investments recorded an income of RM4.07 billion, equivalent to 48.27 percent of the quarterly income.
Income from Malaysian Government Securities (MGS) & Equivalent in Q2 2016 increased 9.48 percent, or RM169.45 million, to RM1.96 from RM1.79 billion in Q2 2015.
Loans and Bonds, meanwhile, generated an investment income of RM2.12 billion, compared with RM2.02 billion in Q2 2015.
Investments in money market instruments and real estates and infrastructure each represented 3.87 percent and 3.59 percent of the total investment assets and contributed investment income of RM239.32 million and RM294.83 million respectively in Q2 2016.
“We remain cautious in our outlook as we anticipate global uncertainties to continue following the lowered forecasts on 2016 and 2017 global growth by the International Monetary Fund (IMF), and the subdued outlook in emerging and developing economies with the upcoming US presidential elections and further risks associated with Brexit that have yet to unfold,” Shahril Ridza said.
He said the low interest rate environment caused by central bank rate cuts to spur the economy is expected to stay for a while and will pose a challenge as more than half of the EPF’s investments are in fixed income instruments.
“The recent reduction in domestic interest rates will also affect our long-term income on domestic instruments.
“Nonetheless, we remain focused on our long-term investment objectives of preserving and enhancing the value of our members’ savings,” he said.
He added this will be done by targeting a real dividend of at least two percent above inflation calculated over a three-year rolling period.