EPF to adopt cautious stance on equities
Shahril says country not spared from global market movements
KUALA LUMPUR: After the encouraging market conditions this year, the Employees Provident Fund (EPF) is taking a cautious stance on the equity market next year, as the global market has been on a bull cycle for a long time.
EPF chief executive officer Datuk Shahril Ridza Ridzuan said that the Malaysian market had done well this year and would continue to grow next year on the back of corporate earnings.
“We are upbeat on the FBM KLCI and the ringgit for next year. We are more cautious on the global market and Malaysia would not be spared from the global market movements,” he told reporters at a briefing here yesterday.
He pointed out that the global market had priced in all the good news and that in terms of valuation, it has been trading above the historical average.
“For 2018, we are taking some cautious steps, as we have to look at an environment of central banks tightening their interest rates.
“Some of the euphoria in the equities market may start to disappear, and it would start to approach valuations which are more rational for the long-term,” Shahril said.
Yesterday, the US Federal Reserve raised interest rates by 0.25%, the third rate rise for the year. It is targeting another three hikes next year.
Shahril pointed out that the global market has been on a bull run for a long time and that “great market conditions don’t last forever”.
Meanwhile, on the EPF’s overseas investments, Shahril said that the portfolio had done very well in the last three years and the fund was looking for more investment opportunities.
“Our property assets have been yielding 11% per year in the last three years. It has been doing very well and we are looking for more opportunities.
“Overseas investment is part of the EPF’s long-term strategy in terms of asset allocation, as well as crowding out our local investments,” he said.
To date, the EPF’s overseas investments account for 30% of its total RM771bil assets under management compared with 6% in 2009.
For the third quarter ended Sept 30, the EPF’s overseas investments contributed 48% to the total investment income during the quarter.
Additionally, Shahril said the EPF was looking at investment opportunities in US infrastructure projects.
“We have already invested in the US equity and bond market. Now, we are looking at infrastructure assets with good returns because as an institutional fund, we are always looking at long-term investment opportunities.
“For instance, in Malaysia, we have invested in Tenaga Nasional Bhd and Plus Malaysia Bhd,” he said.
He pointed out that the EPF has invested in infrastructure assets in the European region.
He, however, noted that the potential investment in the US infrastructure projects would depend on the tax structure.
Domestically, Shahril said that the EPF agreed with the Bank Negara report on the oversupply of commercial and retail space in Malaysia.
On residential property, he said there was still strong demand for houses in good locations.