KUALA LUMPUR: The local stock market will be too thin and volatile if the Employees Provident Fund does not hold a high number of shares across many listed companies, industry observers said.
Hence, the role of the EPF is essential for market size and stability but its dividend payments do not necessarily affect the overall performance of Bursa Malaysia's benchmark FBM KLCI, they said, when commenting on the effects of the fund's latest dividend announcement.
Tradeview Capital fund manager Neoh Jia Man said the EPF dividend announcement does not have any direct impact on Bursa's overall performance.
"The (local bourse's) positive momentum today was likely due to the rally in US stocks overnight," he remarked.
"While it's reasonable to anticipate that Bursa Malaysia's performance may influence future dividend payouts by EPF, the reverse causality is not as applicable. In essence, Bursa Malaysia's trajectory influences EPF's ability to deliver higher dividend, rather than the other way around," Neoh told Business Times.
The pension fund announced a dividend of 5.5 per cent for conventional funds for the financial year ended Dec 31, 2023 (FY2023), with a total payout of RM57.8 billion, 13 per cent higher than RM51.14 billion posted in FY22.
This came on the back of overall market volatility in 2023. Regionally, the FBM KLCI and Asean indices saw negative growth with the FBM KLCI declining 2.7 per cent.
Despite this decline, the EPF noted that it actively managed its portfolio to generate earnings from equities.
Bursa's benchmark FBM KLCI, which opened on Monday 1.08 per cent or 0.07 points higher at 1,539.10 versus Friday's close of 1,538.02, tracked Wall Street's positive performance overnight, which was supported by Nasdaq amid interests in artificial intelligence.
The Dow Jones Industrial Average gained 91 points, both the Nasdaq and S&P 500 tested record highs adding 183 points and 41 points respectively.
At 12:30 pm, the FBM KLCI rose 5.69 points to reach 1,543.71.
Malaysian University of Science and Technology Professor of Economics Geoffrey Williams said EPF is a huge investor in Malaysian equities and holds a high number of shares across many listed companies.
"From one perspective if EPF did not do this, the market would be too thin and volatile so the role of EPF is essential for market size and stability.
"From another perspective, it means that many investors cannot get a meaningful holding in listed companies because the shares are held by EPF. So this crowds out local and foreign investors."
He added the EPF can get a much higher return on overseas equities and should be free and encouraged to do that. "At the moment it is the main anchor investor so is restricted to invest in underperforming local stocks."
Meanwhile, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the EPF dividend is expected to have a positive effect on the market.
"From the press release, it continues to show that the domestic market continues to play a critical role in driving the overall return while at the same time becoming the catalyst for economic growth as EPF are the main players in the bond markets especially the Malaysian Government Securities," he told Business Times.
Universiti Kuala Lumpur Business School economic analyst Associate Professor Aimi Zulhazmi Abdul Rashid said although facing a turbulent year in 2023, the EPF still managed to deliver a good return on investments.
The performance laid the foundation for another commendable year in 2024, he said.
However, on the equity market, he said the global equity market is expected to face headwinds which will trickle down to Bursa.
"The global equity market will continue to be challenging as well and this includes Bursa Malaysia," he added.