EPF investment income for 9M21 up 7.7% y-o-y to RM48b

INVE$T | Market Sentiments

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According to Employees Provident Fund (EPF) chief executive officer Datuk Seri Amir Hamzah Azizan, the total gross investment income for the EPF for the nine months ended Sept 30, 2021 (9M21) rose 7.7% year-on-year (y-o-y) to RM48.02 billion from RM44.6 billion the year before. Total gross investment income for the third quarter ended Sept 30, 2021 (3Q21), however, amounted to RM13.97 billion, lower than RM17.33 billion for 3Q20. He said that 3Q21 was volatile for equities in both the domestic and emerging markets, largely caused by concerns surrounding rising inflation and interest rates. On the other hand, continued recovery of equities in the developed economies amid the heightened volatility provided the EPF an opportunity to capitalise additional gains. Equities continued to be its main income contributor, accounting for 54% of total gross investment income at RM7.5 billion. As part of EPF’s internal policy and a prudent measure to ensure a healthy portfolio, RM110 million was written down for listed equities during the quarter, compared with RM130 million in the corresponding period of the previous year. After taking into account the cost write-down, RM13.86 billion of net investment income was recorded for 3Q21. Cumulatively, RM350 million was written down for listed equities, down from RM6.46 billion in the same period in 2020, on the back of continued recovery in the global equity market, resulting in net investment income of RM47.67 billion for 9M21, compared with RM38.14 billion for 9M20. Investments in fixed income instruments contributed RM5 billion, or 36% of 3Q21 gross investment income, which was lower than the RM8.18 billion generated in 3Q20 due to lower trading gains. This was in line with the higher market yield in 3Q21, compared to the same period of the previous year. The real estate and infrastructure, as well as money market instruments, contributed RM1.18 billion and RM290 million respectively. As at September 2021, the EPF’s investment assets stood at RM988.55 billion, of which 36% were invested in overseas investments. The fund’s diversification in different asset classes, markets and currencies continued to provide income stability and add value to its overall returns. In 3Q21, the EPF’s overseas investments generated RM8.1 billion in income, representing 58% of total gross investment income recorded. A total of RM1.4 billion out of the RM13.97 billion gross investment income was generated for Simpanan Shariah, and RM12.57 billion for Simpanan Konvensional. On the outlook for the rest of the year, the post-lockdown recovery would continue, although at a slower pace, despite continuing concerns over the monetary policy and inflation outlook. Risks to Malaysia’s economic growth outlook remain tilted to the downside on external and domestic factors amid lingering Covid-19 concerns. Continued inflationary pressure and aggressive shifts from central banks led yields to increase amid increased expectations of monetary policy tightening. The environment of increasing bond yields has not just impacted bond markets, but created unease in equities as well. Despite the challenging and unprecedented times, the EPF is hopeful of seeing market sentiments improving in the near future. As a long-term fund, it remains committed and guided by the Strategic Asset Allocation that helps to ride out volatility while taking advantage of declines in valuations of fundamentally strong assets. 

Foreign investors net buyers of bonds in December – Kenanga 

According to Kenanga Investment Bank Bhd, foreign investors turned net buyers of Malaysia’s debt securities in December last year, totalling RM6.1bil, after a month of net selling in November for RM3.6bil. Total foreign debt holdings increased to RM256.6bil compared to November’s RM250.4bil, while its share to total outstanding debt rose to 14.8%, a seven-month high. Demand was likely driven by the return of global risk-on sentiment as Omicron fears began to subside, following reports that it was less severe than other Covid-19 variants. Furthermore, domestic bonds retained high yield differentials against many developed market bonds, keeping them attractive despite monetary policy tightening by major central banks. December’s inflow was driven by a sizeable net increase in holdings of Malaysian Government Securities and Government Investment Issues, which outweighed a softer rise in holdings of Malaysian Treasury Bills. For the equity market, it noted that foreign investors turned net sellers for the first time in five months, selling a total of RM1.1bil worth of shares compared to the RM200mil net buy in November. Demand for equities may have been hindered by lingering uncertainty over the Omicron variant and the United States Federal Reserve’s increasingly hawkish tilt, as it quickened the pace of its tapering process. The capital market registered its largest inflow in four months amounting to RM5bil. However the debt market remains at risk of outflows in the near term as the Fed may tighten monetary policy. 

AmInvest Launches Global Small Caps Fund 
AmInvest unveiled its Global Smaller Companies Fund, offering investors to tap into the potential capital growth of small companies listed globally. The fund will feed into the target fund, Janus Henderson Horizon Fund – Global Smaller Companies Fund, which aims to identify good quality and potentially undervalued small-cap stocks. According to the fund management firm’s chief executive Goh Wee Peng, the fund benefits from structural drivers that will continue to support global small-cap growth and has partnered with investment manager Henderson Global Investors Ltd which has a team of regional specialists in the US, Europe, Singapore and Japan. Since its inception in August 2019 and until Nov 30, 2021, the target fund has delivered returns of 63.5% which is 17.1% higher compared to its benchmark. This has translated to returns of 23.6% per year by the target fund. AmInvest pointed out returns from global small-cap stocks have surpassed large-cap stocks over the long term as they have higher growth and more opportunities for future growth and have outperformed large caps by over 220% over the last 24 years. Smaller companies are targets for mergers and acquisitions. To complete a takeover, the acquirer normally has to offer a valuation over and above where the share price has been trading. This premium has averaged between 21% and 40% in recent years. The target fund utilises fundamental and value-biased screening tools by identifying a narrow investable universe of around 100 to 200 quality stocks with growth potential. While the fund’s risks are managed by diversifying exposures by geography and market sector. The Global Smaller Companies Fund’s base currency is US dollars and it is being offered to sophisticated investors in US dollar and RM as well as RM-hedged classes at an initial offer price of US$1 and RM1 per unit respectively during the initial offer period until Jan 30, 2022. 

Eye On The Markets 

This week, on Friday (14Jan), the Ringgit opened at 4.1815 against the USD from 4.1995 on Monday (10Jan). Meanwhile, the Ringgit was 3.1078 to the Sing Dollar on Friday (14Jan). On Monday (10Jan), the FBM KLCI opened at 1543.38. As at Friday (14Jan) 10:00am, the FBM KLCI is up 16.38 points for the week at 1559.76. Over in US, the overnight Dow Jones Industrial Average closed down 176.70 points (-0.49%) to 36,113.62 whilst the NASDAQ shed 381.60 points (-2.51%) to 14,806.80.  

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