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Monday, February 20, 2017

EPF sees a better 2017

Monday, 20 February 2017
BY M. SHANMUGAM



The fund feels that the election of Donald Trump as president has boosted the capital markets, there is more recovery in Europe and China’s economy is not likely to have a “hard landing”. “We feel that this year would be a better year. Globally we are seeing better numbers,” said EPF chief executive officer Datuk Shahril Ridza Ridzuan(filepic) when contacted

PETALING JAYA: The Employees Provident Fund (EPF), which declared the lowest dividend in seven years, expects a better year ahead on the back of a more stable ringgit and recovery in the global economy.

The provident fund with RM704.27bil to manage, feels that the global economic numbers coming out this year are better compared to last year with more certainty in some major economies such as the US and China.

The fund feels that the election of Donald Trump as president has boosted the capital markets, there is more recovery in Europe and China’s economy is not likely to have a “hard landing”.

“We feel that this year would be a better year. Globally we are seeing better numbers,” said EPF chief executive officer Datuk Shahril Ridza Ridzuan when contacted.


On EPF’s performance for 2016, the 47-year old Shahril, who has been with the EPF since 2009 and heading it since August 2013, said that the provident fund held up well despite the tough year.

“This is the third consecutive year that Bursa Malaysia has closed in negative territory. Corporate earnings are also down,” he said.

Bursa Malaysia, where the EPF has significant investments, recorded a cumulative negative growth of 12% over three years since 2014.

As for corporate earnings, the provident fund expected the companies in FBM100 to see a decline in earnings of about 10% last year. So far about 50% of the 100 companies have reported their earnings and it is down by about 6% compared to 2015.

Because of the general decline in the value of stocks listed on Bursa, the EPF, as in accordance with its accounting standards, needed to mark-to-market the value of its investments. In this respect, the EPF recognised an impairment of RM8.17bil in its books for 2016 compared to RM3.07bil in 2015.

Had this impairment been smaller, the dividend declared would be higher as the EPF only declares dividend from realised income.

Shahril said that the provisions came mainly from EPF’s holdings in banks and oil and gas stocks.

“Banks were trading at historical low valuations of below book,” he said.

Banking stocks across the world saw a significant drop in their values because years of ultra low interest rate policy had eroded their margins. This, coupled with banks not allowed to undertake proprietary trading of stocks and bonds, caused valuations to drop significantly below the benchmark one-time book value. Big names such as Deutsche Bank traded at less than 0.5 times book value last year.

Malaysian banks suffered a similar fate as global financial institutions. Last year it became a norm for banks to trade at less than 0.8 times book value.

However, this year banking stocks are back on vogue. From the US to Europe, institutional funds are buying banking stocks as they feel the low interest rate era was over and under President Donald Trump, the administration would be more friendly towards financial institutions.

To a question, Shahril denied that the EPF’s dividend payout was impacted by its divestment of shares in Felda Global Ventures Bhd (FGV) or its subscription to bonds issued by 1Malaysia Development Bhd (1MDB).

He pointed out that the value of the provident fund’s investment in FGV was “very small” and did not have an impact on the performance of the fund last year.

In this respect, the EPF ceased to be a substantial shareholder of FGV, meaning its holding is less than 5%, in June 2015.

As for the bonds, Shahril said EPF only subscribed to RM200mil of 1MDB’s first issuance of RM5bil Islamic debt papers and it was fully guaranteed by the government.

Meanwhile CIMB Group Bhd group chief executive Tengku Datuk Seri Zafrul Aziz described EPF’s declaration of 5.7% dividend as commendable and reflective of EPF’s prudent management strategy.

“This is commendable given the tough investment climate both locally and globally and market uncertainties brought about by Brexit and Trump’s presidential election victory,” said Zafrul in a statement.

To be noted, in absolute amount, the EPF’s dividend payout for last year is more than 2014 even though the dividend declared is lower that the 6.75% declared in 2014.

EPF said in a statement on Saturday that this was because every 1% dividend in 2016 required RM6.51bil while in 2014 it was RM5.43bil. The payout required for every 1% has been growing at 9.5% annually since 2001 in tandem with the growing number of members’ savings, it said.

Read more at http://www.thestar.com.my/business/business-news/2017/02/20/epf-sees-a-better-2017/#oKuzkZVP5kR1euUS.99

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