EPF account restructuring could impact demand for ringgit bonds: Maybank IBG

PETALING JAYA: The Employees Provident Fund (EPF) account restructuring announced recently could impact demand for ringgit bonds due to potential withdrawals, said Maybank Investment Banking Group (Maybank IBG).

“Depending on actual withdrawals and asset allocation, the pension fund’s demand for ringgit bonds may be somewhat affected, in our view, though the prioritisation of domestic investments provides some cushion,” it said its in Fixed Income Weekly report.

Maybank IBG said investors may bid more conservatively in the near term if global bond sentiment remains weak. “... as the MGS 10y30y curve is flat and long duration supply is expected to rise in May-June”, it added.

However, it said the fundamental demand for long-duration Malaysian Government Securities and Government Investment Issues is expected to remain stable.

According to an EPF statement issued in early March, fixed income instruments, predominantly Malaysian Government Securities, continued to be the anchor for the fund’s portfolio in maintaining steady returns.

“The asset class contributed RM19.7 billion (30%) of EPF’s total investment income, yielding a return on investment (ROI) of 4.41%. The higher income compared to 2022 (RM18.2 billion) is in line with the growing asset size and is mainly contributed by interest and profit income from bonds and sukuk, respectively,” EPF said.

The pension fund said equities contributed RM39.1 billion, accounting for 58% of its total investment income with an ROI of 8.68%.

“The increase in income, more than the RM27.1 billion in 2022, was mainly attributed to higher capital gains following better market conditions. Listed equity write downs for 2023 were minimal at RM400 million, compared to the RM3.43 billion recorded in 2022. Private equity investments generated an ROI of 9.69%,” it said.

EPF said its real estate and infrastructure registered an income of RM6.03 billion, 8% or RM430 million up on the 2022 income of RM5.6 billion, recording an ROI of 5.04%.

“Income from money market instruments was RM2.17 billion, more than double the income generated in 2022, owing to higher money market balances and foreign currency translation, delivering an ROI of 4.93%.”

EPF said that as of the end of 2023, it held RM1.14 billion in investment assets, of which 62% were domesticy, generating RM31.7 billion over the past 12 months. Meanwhile, global assets generated RM35.3 billion.

The pension fund has announced details of an anticipated restructuring of member accounts. The current 70:30 mix for Account 1 and Account 2 will be restructured into three accounts at 75:15:10.

The major change is the creation of a flexible Account 3, weighted at 10%, allowing members to withdraw funds with no conditions. This change will take effect from May 11. Members are given the option for a one-time opt-in to transfer funds from Account 2 to the new accounts.

It is estimated that RM25 billion will be withdrawn in the first year, potentially halving annual net contribution flows to EPF.