KUALA LUMPUR: The Employees Provident Fund (EPF) is expected to continue its firm growth momentum after its distributable income soars to more than RM36 billion in the first half of 2024.
Economists said this is possible given that Malaysia's equity markets continue to attract foreign fund managers' investment.
The EPF on Tuesday reported a distributable income of RM36.70 billion for the first half of 2024 (1H24) ended June 30, up 29 per cent from the RM28.40 billion registered for the same period in 2023.
The fund's total distributable income for the second quarter (Q2) after write-downs stood at RM17.50 billion or 25 per cent more than the RM13.98 billion in the same quarter last year.
The distributable income excludes unrealised mark-to-market gains, it noted.
UniKL Business School economic analyst Assoc Prof Dr Aimi Zulhazmi Abdul Rashid said Malaysia's strong position in the global IT industry supply chain, particularly in semiconductors, data centres and artificial intelligence (AI), continues to draw significant investment from industry players.
This influx of investment can contribute to the EPF's positive growth momentum.
"The EPF domestic investment is expected to grow strongly as the ringgit continues strengthening in tandem with US dollar weakening as the market expects rates cut by the federal reserve," he told Business Times.
Elaborating on the performance, the EPF said for Q2, equity investments were the largest income contributor, generating RM10.75 billion after write-downs. This made up 61 per cent of the total distributable income.
The better performance in equity markets, both locally and globally, led to higher income compared with Q2 2023.
Fixed income assets provided stability, contributing 33 per cent or RM5.72 billion, while real estate, infrastructure and money market instruments added RM0.50 billion and RM0.53 billion respectively.
The EPF chief executive officer Ahmad Zulqarnain said favourable market conditions, both in Malaysia and internationally, contributed to a 29 per cent growth in the first half of 2024, with assets under management increasing to RM1.21 trillion.
He said the Malaysian market had benefited from increasing investor interest in growth oriented policies and fiscal reforms.
Meanwhile, the international markets such as the US benefited from continued solid macroeconomic conditions, declining inflation and anticipation of the beginning of an interest rate reduction cycle.
"Despite relatively calm market conditions, risks persist as illustrated in the recent sell-down in global markets and sharp increases in volatility caused by market participants unwinding some concentrated and crowded positions.
"As a long-term investor, the EPF will continue with its strategy of constructing a highly diversified portfolio driven by its strategic asset allocation," he said.
Meanwhile, Aimi noted that for international investment, the EPF had to be cautious with the projection of US dollar declining in value as the Federal Reserve cuts rates requiring the fund to hedge its forex positions.
"This is also in view of the US economy which has been projected to slow down or even move to recession next year. Hence, the EPF is expected to gradually reduce its overseas investnments and relocate from the US to other developed and developing markets," he added.
He also said the risk of volatility in the global market still continues as a threat to growth, especially geopolitical crises in Eastern Europe and the Middle East.
Bank Muamalat chief economist Dr Mohd Afzanizam Abdul Rashid said the global equities were expected to remain volatile in the second half of 2024 due to the possible unwinding of yen carry trade which sparked global sell-off on Aug 5.
However, he pointed out the Bank of Japan's (BoJ) decision to raise interest rate was not on pre-set terms where they will weigh the impact to the global economy as the country was also susceptible to global demand gyrations.
"The EPF's diversification strategy where presently 80 per cent of the new funds will be invested in the domestic markets makes perfect sense given the heightened uncertainties over the unwinding of yen carry trade as well as concern on possible recession in the US," he added.
Afzanizam said 46 per cent of the fund's assets were geared towards fixed income instruments which would insulate the funds from global volatility as such asset class is meant for capital preservation.
"In short, the EPF is well positioned to withstand the global uncertainties and delivers respectable and reasonable dividend rates to its members."
Afzanizam pointed out that the EPF's investment decision was very dynamic and well-disciplined as it adhered to the strategic asset allocation.
"For now, 80 per cent of the new funds will be allocated for domestic investment so in that sense, the EPF should be able to insulate itself from excessive global volatility," he added.