KUALA LUMPUR: The global economic slowdown and markets uncertainty especially in the fourth quarter of 2023 may have sharply affected the Employees Provident Fund's (EPF) investment performance.
Economists said global economic trends such as inflation and interest rates as well as geopolitical events can significantly influence the EPF's investment returns.
"These global trends influence exchange rates, foreign investment flows as well as Malaysia's import-export dynamics which ultimately affect EPF's portfolio investment returns domestically and internationally," UCSI University Malaysia associate professor of finance and research fellow at the Centre for Market Education Liew Chee Yoong told the Business Times.
Citing an example, Liew said some of the factors that influenced the EPF's investment portfolio last year included the economic slowdown in developed economies.
The slowdown had influenced the returns of EPF's investments abroad, interest rate volatility as well as its foreign portfolio performance, he added.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the changes in external monetary policies would dictate the capital flows as investors will always be incentivised by higher returns.
He said when the US Federal Reserve (Fed) and other major central banks raised their interest rate aggressively, their respective currencies would appreciate following higher demand for their currencies.
"So the shift in fund flows as a result of changes in key policies globally will affect the investment performance," he said.
Afzanizam said there are various factors affecting the EPF's investment performance including the anticipation of the US Fed monetary policy, China's growth trajectory, commodity prices and geopolitics.
Furthermore, he said others can be unique such as the financial performance of the investee companies.
"This is where skills for stock picking are crucial to ensure that only the good companies will be invested. That is why institutional investors would have a big investment research team to assist the fund managers to make a quality decision," he said.
Malaysia University of Science and Technology economist Dr Geoffrey Williams has a different take on the impact of the global economic trends on the EPF, saying that they are only mildly linked to the pension fund's investment returns.
"This is because these depend more on specific companies than on the overall economy. Even if the economy is weak some companies do well. So there is not a short-term direct link," he said.
According to Williams, institutional funds such as the EPF have a strategic asset allocation strategic asset allocation (SAA) policy which splits across various investments in different countries.
"So they will invest in fixed income assets, government securities, stock markets, real estate and even venture capital in Malaysia and overseas," he said.
Specifically on the EPF's dividends payment, some economists expect it to be lower in 2023 than the 5.35 per cent (for conventional savings) in 2022.
Liew said given the mixed economic outlook last year, characterised by a global economic slowdown but steady economic growth in Malaysia, the EPF dividend rate for 2023 might reflect these contrasting trends.
"Based on this outlook, I would predict that the dividend rate for EPF in 2024 will be slightly lower than the rate in 2023, potentially falling slightly below 5.35 per cent for conventional savings and slightly below 4.75 per cent for Shariah savings," he added.
Williams said despite the uncertainty, there is hope for a higher return of under 6.0 per cent at around 5.5-6.0 per cent.
Afzanizam said global equities performed favourably in 2023, with indices such as the S&P500, Nasdaq, Dax, Cac and Nikkei 225 gaining 24.2 per cent, 43.4 per cent, 20.3 per cent, 16.5 per cent and 28.2 per cent respectively.
He said the EPF's substantial investment in global markets, accounting for about 38 per cent of their total assets, is expected to have a positive impact on the fund's investment income.
"Already, the EPF has registered 33 per cent increases in the total investment income to RM47.86 billion for the first nine months of 2023.
"As such, we shall expect a better dividend rate from EPF for 2023 performance," he said.
The EPF's dividend reached its peak at 8.5 per cent in 1986, marking the highest rate the fund has ever paid, whereas its lowest dividend was recorded at 5.2 per cent in 2020.