EPF allocates RM1bil for investment opportunities in pre-IPO space

INVE$T | Market Sentiments

Download INVE$T #97

According to The Employees Provident Fund (EPF) CEO, Datuk Seri Amir Hamzah Azizan, the fund aims to venture into the private equity pre-IPO space in 2022. There is not enough stimulus going into Bursa Malaysia as there seems to be an “investment trap” – a funding gap between the time a company moves from the venture capital market and enters the pre-initial public offering (IPO) stage. This gap presents investment opportunities. Towards the later stage of the pre-IPO, EPF can play a role as it can manage the risk element and get fairly good returns for the members and in that process, it can also help generate the engine that feeds into Bursa. He was speaking at the fund’s FY2021 results media briefing. For this endeavour, EPF will be working with specific funds to promote and look into opportunities in that particular stage. The move will also stem the shifting of companies to outside Malaysian waters. Nonetheless EPF needs to deliver its core mandate and in that mandate, it will not take abnormal risks and the investments have to fit its risk investments tolerance levels. For 2021, EPF has declared a 6.10% dividend for conventional savings which translates into a total payout of RM50.45 billion and syariah savings receive a 5.65% dividend, amounting to RM6.27 billion. The latest dividends surpass the 5.2% and 4.9% payouts for conventional and syariah savings reported for 2020, as well as the 5.45% and 5.0% for the pre-pandemic year of 2019, respectively. The strong results were attributed to the continued market recovery in 2021, particularly in the developed markets, which contributed to its listed equity portfolios, providing opportunities for it to realise profits. Equities, particularly foreign-listed equities, which recorded a return on investment (ROI) of 10.44%, continued to be the driver of returns. For 2022, the fund will be increasing its investments in various domestic asset classes. The reopening of economies and businesses, as well as various initiatives under the National Economic Recovery Plan, would provide fertile ground for the EPF to increase its investment efficiencies and leverage on the opportunities that a recovery brings. Due to the complications from the Covid-19 pandemic, the fund received a mandate to allow early withdrawals for its members via i-Lestari, i-Sinar and i-Citra that collectively saw RM100.9 billion withdrawn from EPF between April 2020 and February 2022. EPF had to manage liquidity due to the withdrawals and the best way to manage this was by repatriating its investments in the international market as EPF has a diverse portfolio and won’t rattle the market. If there were no withdrawal schemes, there’s a likelihood the fund could have stayed a bit longer in the international market and had the potential to ride the market as it crested. Now that the schemes have ended the fund will continue to go back and invest both domestically and internationally, continue to design a portfolio that will give risk reward returns that its normal Strategic Asset Allocation will give. On projections for 2022, he said it is too early to tell, but assured contributors that the fund does not have any direct exposure to any interest in Ukraine or Russia, hence there is no material impact from the conflict. When the Ukraine-Russia situation occurred, the market gyrated a little bit and it has since recovered to where it was, save for oil prices. The key is to understand what the long-term ramification of that is and make sure we have the agility in our portfolio to address that. EPF can make money whether the market moves up or down, depending on its volatility play, as it has a long-term investment horizon. For example, when the market goes down, it can take the opportunity to buy good long-term assets at the favourable prevailing price. By asset class, EPF’s fixed income instruments account for 45% of investments, followed by equities at 44%, real estate & infrastructure is at 6% and money market instruments make up the remaining 5%. 

OPR kept unchanged at record low of 1.75% – BNM 

According to Bank Negara Malaysia (BNM), its Monetary Policy Committee (MPC) decided to maintain the overnight policy rate (OPR) at 1.75% as it evaluated various factors including the Russia-Ukraine conflict, which has emerged as a key risk to global economic growth, trade prospects, commodity prices and financial markets. It is also mindful of lingering concerns over the Covid-19 pandemic. For Malaysia, risks to the country’s economic growth outlook remain tilted to the downside due to external and domestic factors while Malaysia’s inflation in 2022 is projected to remain moderate. The MPC considers the current stance of monetary policy to be appropriate and accommodative. Fiscal and financial measures will continue to provide support to economic activity. Amid the prevailing uncertainties, the stance of monetary policy will continue to be determined by new data and their implications on the overall outlook for domestic inflation and growth. The OPR has been maintained at 1.75% since July 7, 2020, when BNM cut the rate from 2%. While the global economy continues to recover and the recent moderation in economic activity due to the Omicron variant-driven Covid-19 resurgence, the overall recovery trajectory remains on track. Inflation in many economies remain elevated, due to both demand and supply factors. Going forward, more countries will transition to endemic management of Covid-19, hence, supporting global growth prospects. The unfolding developments surrounding the military conflict in Ukraine, however, have emerged as a key risk to global growth and trade prospects, commodity prices and financial market conditions. The global growth outlook will also continue to be affected by developments surrounding Covid-19, risks of prolonged global supply disruptions, and heightened financial market volatility amid adjustments in monetary policy in major economies. Despite the challenging environment, the Malaysian economy expanded by 3.1% in 2021 from a year earlier. Looking ahead, Malaysia’s economic growth recovery will strengthen in 2022, driven by the expansion in global demand and higher private sector expenditure, amid improvements in the labour market and continued targeted policy support. The expected reopening of international borders would also provide further support to economic recovery. The economic impact from the recent increase in Covid-19 cases due to the Omicron variant is expected to be considerably less severe than previous waves in the absence of stringent restrictions. Risks to Malaysia’s economic growth outlook remain tilted to the downside due to external and domestic factors. These include a weaker-than-expected global growth, ongoing geopolitical conflicts, worsening supply chain disruptions, and developments surrounding Covid-19. Malaysia’s 2022 headline inflation, as measured by the consumer price index, is projected to remain moderate as the base effect from fuel inflation continues to dissipate. The country’s core inflation is expected to normalise to around its long-term average as economic activity continues to pick up amid the environment of high input costs. Nevertheless, core inflation is expected to be modest, with the upside risk partly contained by the continued slack in the economy and labour market. The inflation outlook continues to be subject to global commodity price developments amid risks from prolonged supply-related disruptions. 

Malaysia’s GDP to grow by 6pc in 2022 – MIDF Research 

According to MIDF Research, Malaysia’s gross domestic product (GDP) is expected to grow stronger at six per cent in 2022 from 3.1 per cent for 2021, mainly driven by further reopening of the economy such as lifting the ban on international travels which will support a better growth outlook this year. The research firm said that with high vaccination rate, there is less need for the government to tighten COVD-19 restrictions given the ability of the healthcare system to withstand the recent resurgence in Covid-19 infections. Therefore the momentum of growth will continue to strengthen this year, backed by growing domestic spending, improving labour market and increased business activities. In its Monthly Economic Review, it said sustained growth in external demand will also support Malaysia’s trade and production activities this year. Near-term growth outlook remains positive as growth momentum seen improving with the leading index (LI) increasing to 2.1 per cent year-on-year (y-o-y) in December 2021 compared to 1.6 per cent in November 2021, buoyed by the increment in the number of housing units approved, indicating increased business activities going forward. Although the Ukraine-Russia conflict will not have a direct significant impact to Malaysia’s trade, prolonged disruption in the global supply chain, rising commodity prices and higher import costs will be among downside risks to growth outlook. Meanwhile, Malaysia’s total trade in January 2022 stood at RM203 billion or 24.8 per cent y-o-y higher than January 2021, driven by sustained growth in both exports and imports. Exports rose at 23.5 per cent y-o-y in January 2022, sustaining double-digit growth for the sixth straight month. The pace of exports growth was, however, more moderate than December 2021 (29.2 per cent y-o-y), reflecting the moderation in manufacturing exports and similar trends observed in regional exports. Imports growth accelerated to 26.4 per cent y-o-y compared to December 2021 at 23.6 per cent y-o-y and maintained two-digit growth since February 2021, mainly due to the low base effect as imports previously weakened in January 2021 because of movement control order 2.0. On Malaysia’s headline inflation rate, January 2022 headline inflation recorded a four-month low, where it eased to 2.3 per cent y-o-y compared to 3.2 per cent y-o-y in December 2021, dragged by lower price growth of non-food. Core inflation remained on upward momentum, rose by 1.6 per cent y-o-y, the fastest pace in two-years. The continuous pick-up in core consumer price index indicates the revival effects of growing domestic demand on general prices amid moderate recovery in labour market and economic reopening. On sequential basis, overall inflation data rose at marginal pace. The softening pace seen in headline inflation is expected following dissipating low-base effects especially from transport inflation. 

Eye On The Markets 

This week, on Friday (4Mar), the Ringgit opened at 4.1900 against the USD from 4.2010 on Monday (28Feb). Meanwhile, the Ringgit was 3.0808 to the Sing Dollar on Friday (4Mar). On Monday (28Feb), the FBM KLCI opened at 1595.74. As at Friday (4Mar) 10:00am, the FBM KLCI is up 8.19 points for the week at 1603.93. Over in US, the overnight Dow Jones Industrial Average closed down 96.69 points (-0.29%) to 33,794.66 whilst the NASDAQ shed 214.07 points (-1.56%) to 13,537.94.  

Leave a Reply

Your email address will not be published.