Malaysia's Employees Provident Fund (EPF) is “cautiously optimistic” about the macroeconomic outlook in spite of a near 20% decline in investment income in the first nine months of the year and “strong concern” about international markets.
The assessment by Malaysia’s largest pension fund is based on potentially slower rate hikes by the US central bank and a possible peak in global inflation.
The EPF’s gross investment income fell 18.44% to 39.31 billion ringgit (US$8.94 billion) in January through September from 48.2 billion ringgit in the same period of 2021.
Although it didn’t explain the decline, a number of Asian peers, including Japanese pension giant Government Pension Investment Fund, have reported investment losses as financial markets were battered by global central bank rate hikes to fight inflation, the war in Ukraine, and China’s strict Covid-19 policies.
EPF Chief Executive Officer Amir Hamzah Azizan says "uncertainty revolving around international markets continues to be a strong concern".
"We are taking a 'cautiously optimistic' stance as we are not ignoring indicators that may suggest improvement in the macroeconomic outlook, such as the possible peak in global inflation, and the US Federal Reserve's hints that interest rate increases will begin to slow in the coming months," he says in a statement on December 5 when the EPF released third-quarter results. The pension fund’s third-quarter investment income was 12.32 billion ringgit.
The US central bank has hiked interest rates six consecutive times this year, including four 75 basis point increases, and has served notice that it isn’t done yet. There are growing concerns that higher borrowing costs may drive the economy into a recession.
The Fed signalled in November that future increases will be slower. Its last rate decision for the year is on December 14.
“There are ongoing concerns that high interest rates will lead to a global recession…However, the EPF’s disciplined investment approach helped to cushion the impact and allowed the EPF to deliver a steady performance driven by the strong rebound in the domestic market,” Amir Hamzah says.
The fund’s assets under management dropped 4.85% to 961.01 billion ringgit as of end September from 1.01 trillion ringgit at the end of 2021.
The EPF manages retirement savings of private sector employees and the self-employed, with 15.61 members as of September.