KUALA LUMPUR: The Employees Provident Fund (EPF) recorded a total investment income of RM47.86 billion for the nine months ended September 30, 2023 (9M23), 33 per cent higher than the RM36.04 billion recorded in the same period in 2022.
The amount was after netting off listed equity write downs recorded for the period, according to EPF in a statement.
Out of the RM47.86 billion total investment income, RM4.62 billion were generated from mark-to-market (MTM) gains of securities that have not been realised.
The MTM gains were mainly due to the fluctuation of foreign exchange rates. Meanwhile, the total investment income for the third quarter ended September 30, 2023 (3Q23), was RM14.67 billion after netting off write downs. The amount was an increase of RM2.38 billion from RM12.29 billion recorded in the corresponding period in 2022.
Chief executive officer Datuk Seri Amir Hamzah Azizan said during the third quarter, EPF witnessed global equities posting a negative return, shifting significantly from the strong gains experienced in the first half of the year.
He added that the Gaza-Israel war and the ongoing Russia-Ukraine conflict will undoubtedly contribute to an atmosphere of uncertainty and market volatility.
"We anticipate geopolitical risks will continue to amplify the already turbulent economic situation. "Market sentiments also experienced various changes, influenced by multiple factors, such as the concerns about the health of China's economy, rising energy prices, and increasing government bond yields, all against the backdrop of the potential for an extended period of high interest rates." "Notably, August 2023 marked a significant event when Fitch Ratings downgraded the US's AAA rating to AA+. This action was prompted by the growing debt burden, underscoring the challenges faced by the global economic landscape," he said.
Furthermore, Amir Hamzah said the global fixed income markets experienced negative total returns in the third quarter 2023, due primarily to the sharp increase in sovereign yields.
He noted that the increase in government bond yields was influenced by resilient economic data and the prevailing narrative of "higher for longer" policy rates due to inflation moderation being slower-than-expected.
He said these developments have introduced a new dimension to the global economic landscape, one that requires the EPF to implement a vigilant and adaptive approach as we navigate the financial market.
Equity investments remained a significant contributor to investment income, accounting for 63 per cent of the total investment income in 3Q23, with RM9.17 billion generated after netting off write downs.
The increase in income compared with the RM5.89 billion recorded in 3Q22 can be attributed to the fund managers' proactive approach to realise capital gains at the beginning of the quarter, which saw some equity indices recording their best year-to-date performance, particularly for developed markets.
Fixed Income Instruments, which serve a capital preservation role, have been the anchor for the EPF and continued to provide a steady stream of income, mitigating the impact from short term market volatility and providing stability for the EPF's overall income.
This asset class, comprising Malaysian Government Securities and Equivalents, as well as Loans and Bonds, contributed 32 per cent or RM4.76 billion, to EPF's total investment income for 3Q 2023.
Real Estate and Infrastructure registered an income of RM0.29 billion, while income from Money Market Instruments generated RM0.45 billion, contributing 2 per cent and 3 per cent to the total investment income for 3Q 2023 respectively.
The EPF's investment assets continued to record strong growth backed by the higher income generated from its investments and healthy net contributions received as at September 2023 amounting to RM73.58 billion, compared to RM63.61 billion recorded in 2022.
As at September 2023, the EPF's investment assets stood at RM1,092.32 billion, of which 37.7 per cent was invested in overseas investments. The increase in overseas exposure since December 2022 was primarily due to the favourable movements in the foreign exchange translations as well as the capital appreciation that pushed the valuations higher.
In 3Q 2023, the EPF's overseas investments generated RM6.55 billion, or 45 per cent, of the total investment income recorded.
"While we had a good third quarter, it is not indicative of the performance in the fourth quarter, which remains a concern given the escalating geopolitical risks that threaten the global financial system amid heightened risks of higher inflation and slower growth," Amir Hamzah said. He added that EPF's focus remains on prudent risk management and strict adherence to our long-term strategic asset allocation (SAA) model, which has consistently proven its efficacy and has been instrumental in fortifying its resilience amid market uncertainties.