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Pension Funds

Malaysia’s EPF says overseas equity holdings power third-quarter investment gains

EPF investment chief notes importance of opening the door again to more overseas allocations

Petronas Towers, Kuala Lumpur

Malaysia's Employees Provident Fund on Wednesday reported investment income of 12.95 billion ringgit ($3.06 billion) for the quarter ended Sept. 30, powered predominantly by returns on the fund's overseas equities holdings.

The income was up 12.5% from the prior quarter.

The latest gains, combined with net contributions to the fund for the quarter, lifted the value of the investment portfolio to 771.2 billion ringgit, up 1.5% from the prior quarter and up 8.2% from the year before.

An EPF news release said overseas investments accounted for 30% of the fund's portfolio but 48% of the quarter's investment income.

“The EPF's overall portfolio performance has benefited from the rally in the overseas equities markets in Q3 2017,” said Mohamad Nasir Ab Latif, the fund's Kuala Lumpur-based deputy CEO (investment), in the news release.

Compared with the 2% to 5% gains garnered by overseas markets, Malaysia's domestic stock market was relatively flat, noted Mr. Mohamad Nasir. The Kuala Lumpur Composite index closed at 1,755.58 on Sept. 30, down from 1,763.67 as of the June 30 close of the prior quarter.

Overall, the fund's combined allocations to domestic and overseas equities came to roughly 42% of its portfolio, and accounted for around 61% of the quarter's investment income. It's roughly 50.5% allocation to fixed-income instruments, meanwhile, added another 35% of total investment income. Combined allocations of just less than 8% to money market instruments and real estate and infrastructure accounted for the rest.

The weight of overseas investments edged up from 29% for the quarter ended June 30 on the strength of valuation gains as opposed to additional allocations, reflecting “regulatory restrictions” on new overseas investments, Mr. Mohamad Nasir said.

Two years ago, as investment outflows were lowering the ringgit's value against the dollar to roughly 4.5 from around 3.2, Prime Minister Najib Razak called on government-linked asset owners to provide support for Malaysia's economy by bringing some overseas allocations back to the country.

That pressure could be subsiding now, with the ringgit's rebound in currency markets accelerating in recent months. After strengthening to 4.2225 from 4.2935 to the dollar over the most recent quarter, the ringgit is changing hands Thursday at 4.0885.

Mr. Mohamad Nasir said in the release, “Over the long run, the EPF must continue to expand our foreign assets portfolio as it is key to our diversification and allows us to meet our return targets.”