KUALA LUMPUR: The Employees Provident Fund's (EPF) 20 per cent jump in investment income for the first nine months of 2024 has fuelled much speculation of a bonanza dividend payout topping six per cent for the year, but the local and global equity markets performance in the fourth quarter so far, could throw a wet blanket on the prospect.
Last Friday, a gauge of global stocks was set for its biggest weekly drop in two months after economic data and comments from Federal Reserve officials suggested a slower pace of interest-rate cuts ahead.
EPF's equities investment assets despite making up 44 per cent of its total in the third quarter of 2024, made up 93 per cent of its investment income of RM19.67 billion in the quarter.
Fixed income instruments which made up 47 per cent of its investments assets, brought in about 33 per cent of income.
Its other investment assets like money market instruments and real estate and infrastructure reported about RM5 billion losses in the quarter.
Losses from foreign exchange translation with the appreciation of the ringgit were RM4.53 billion and RM1.92 billion for real estate and infrastructure, and money market instruments respectively.
The ringgit strengthened against the US dollar during the third quarter from 4.72 to 4.12.
As at 5pm, Friday, the ringgit was trading 4.465 against the US dollar.
IDEAS Malaysia economist and assistant research manager Doris Liew said Donald Trump's victory in the U.S. presidential election has positively influenced market sentiment on the U.S. stock market, fuelled by expectations of market-friendly domestic policies such as corporate tax cuts and deregulation.
"While the potential for tariff hikes poses challenges for foreign goods, including Malaysian exports, Malaysia's exposure to foreign equity markets, particularly the U.S., offers significant growth potential. This exposure also serves as an effective hedging strategy, enabling the Malaysian market to mitigate risks from global market volatility," she said.
Commenting on the outstanding performance of the equities asset class in the third quarter, Doris said it is important to recognise the role of asset classes in portfolio management.
"While other asset classes may exhibit weaker performance compared to equities, they are not designed to deliver high growth. Instead, they serve as critical hedging instruments to safeguard against market volatility and economic uncertainties. The strong recovery and growth of equity assets is a positive development, as equities are inherently growth-oriented and essential for driving portfolio returns," she said.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid told Business Times the equities market which is the main driver for EPF's income has been quite volatile due to uncertainties over the US politics especially on policy related issues by the President-elect Donald J. Trump.
"This could have an important implication on the Fed monetary policy stance as Trump policies are deemed inflationary. Perhaps, a similar dividend rate can be expected, if not higher from last year's level," he said.
The EPF announced a dividend of 5.5 per cent for conventional savings and 5.4 per cent for shariah for 2023.
"The highly anticipated reduction in the U.S. interest rates drove market sentiment and gains across multiple sectors, including real estate investment trusts (REITs), utilities and financials, all of which positively impacted the EPF's investment portfolio."
"China's real GDP growth was recorded at 4.6 per cent year-on-year, slightly down from 4.7 per cent in the previous quarter."
"Nonetheless, risks remain in the global outlook such as the trajectory and pace of interest rate reductions, persistent and escalating geopolitical tensions particularly in the Middle East, and potential higher import tariffs into the U.S. with the election of Donald Trump last week," EPF chief executive officer Ahmad Zulqarnain Onn said in a statement last week.
That said economists are hopeful that the nine-month performance, combined with favourable economic conditions will boost EPF's domestic-focused investments to deliver strong returns.
"The 2023 dividend rates for both conventional and shariah funds were already higher than those of 2022, thanks to improved economic conditions."
"With even better economic growth in 2024, as shown by higher gross domestic product (GDP) growth and a more than 10 percent rise in the KLCI index, EPF's domestic-focused investments are likely to deliver strong returns," Putra Business School's Master of Business Administration programme director Assoc Prof Dr Ahmed Razman Abdul Latiff told Business Times.
Meanwhile, economist Dr Geoffrey Williams said the number of EPF account holders and voluntary contributions have increased so the fund is in good shape. "The outcome of the US elections is positive for global trade and growth as well as for global investment returns. This is one driver of higher EPF investment income and is likely to continue this year and next," he said.