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DESPITE last year’s headwinds, the Employee Provident Fund (EPF) may declare a dividend rate that ranges from 4.0% to 5.5% for 2020, according to several economists.
Sunway University economics professor Dr. Yeah Kim Leng expects a dividend rate of 5.0% to 5.5%, noting that the fund’s investment income for the first nine months of 2020 exceeded the prorated dividends of 2019, when it declared dividends of 5.45%, by 10%.
Yes, expect a dividend rate of 5% to 5.5%.
He opined: “The forecast for EPF’s prospective dividend to be declared for 2020 is therefore very promising despite the severe economic recession.”
Yes, he reasoned that both local and foreign equity markets have faced global recession due to massive fiscal and monetary stimulus mounted by governments around the world, steadily improving in the final quarter of 2020.
Given that EPF’s significant investment assets abroad amount to roughly a third of its total assets, he said this enables the fund to “deliver an enviable performance that breaks trends despite the low interest rate environment.”
Similarly, Putra Business School associate professor Dr. Ahmed Razman Abdul Latiff and AmBank research group chief economist Dr. Anthony Dass predicted that the pension fund will declare a 4.5% dividend rate. to 5.5% and from 4.0% to 5.0% for 2020 respectively.
Ahmed Razman attributes the reason for EPF’s positive performance to the fund’s Strategic Asset Allocation (SAA), which guides the management of its investment portfolio.
Afzanizam believes that EPF’s diversification strategy has paid off.
“An advantage for EPF is its high percentage of holdings of investment assets abroad that consistently yield higher returns than other asset classes,” he said, noting that 32% of EPF’s investment assets are abroad. and contributed 45% of its total gross investment income of RM17.33 billion in Q3 2020: a 30% increase in its assets that contributed 39% of its gross investment income of 15.12 million dollars in the second quarter of 2020.
With that said, there is concern that EPF’s dividend performance could be affected by the various Covid-19 stimulus packages and emergency relief measures, and Yeah added a caveat that the fund’s overall performance could probably be affected by the anticipated refunds and resulting taxpayer withdrawals. , as well as missed opportunities to obtain higher returns.
EPF has 14.8 million members with 7.6 million active, receiving net deposits of RM1.7 billion per month before the pandemic. However, once the pandemic hit, the unemployment rate soared to 5.3% and more than 200,000 Malaysians lost their jobs, likely affecting EPF’s total deposits.
Furthermore, emergency relief measures such as i-Lestari and i-Sinar have resulted in more than recalls of RM14.1bil and RM34bil respectively since their launch, not including possible additional recalls of i-Sinar Category 2.
In contrast, other economists believe that the government’s emergency relief measures may not have a significant impact on its dividend rates.
Anthony opined: “Even with the outflow of funds as a result of emergency aid such as i-Lestari and i-Sinar, your assets and investments locally and abroad still offer high returns and will allow you to declare modest dividends.”
“[Such measures] prompted EPF to increase its stake in money market instruments, which are more liquid, but would normally yield lower returns than other asset classes. Fortunately, other asset classes such as foreign investments, fixed income and real estate investments have performed well recently, allowing EPF to continue to deliver a competitive dividend rate, ”added Ahmed Razman.
Furthermore, Bank Islam’s chief economist, Dr. Mohd Afzanizam Abdul Rashid, further noted that EPF’s experience in managing its assets and liabilities would have allowed the fund’s economies of scale to plan its cash flow so as not to disrupt business. operations.
Ahmed Razman expects a dividend rate of 4.5% to 5.5%.
He said: “I think EPF’s diversification strategy has really paid off, in particular by venturing abroad. This has resulted in a significant revenue contribution and, to a large extent, has also helped them build their economies of scale and expertise. “
For the next few years, Yeah offers a challenging outlook, as there are higher risks of “sudden stops” in flows to emerging markets as global financial markets are flooded with liquidity.
This, he said, is in addition to stronger market swings and greater financial volatility due to increased sensitivity to common global risks such as geopolitical conflicts, climate change, trade and currency wars, growth swings and inflationary shocks.
“It will be increasingly difficult for EPF to maintain good dividends without taking more risks in its investment portfolio. Fortunately, their portfolio is well diversified across asset classes and geographic markets, but they are increasingly correlated, ”Yeoh said.
In addition to that, Anthony emphasized that EPF also assesses and considers risks with its diversified portfolio, so it will hold its own even during the challenging year.
He added: “The important thing is that your strong investment strategy will help you make the right investment decisions and produce consistent returns in the future.
“As a provident fund, they have done reasonably well despite the circumstances, as they have clear objectives with a solid investment framework. Long-term strategy and goals are anchors for pension funds, especially in the wake of last year’s volatility, I think they can handle it. “
As for Ahmed Razman, he is confident that after 2020, EPF will be able to maintain and even declare a higher dividend rate than last year, as the global economy will continue its recovery phase, especially with the distribution of the Covid vaccine. -19 worldwide.
Anthony has a rate of 4% to 5%.
While there has been a slight deviation in terms of the percentage of investment that EPF allocates for each asset class, he believes that it is understandable given the current circumstances affecting the liquidity of EPF’s assets.
“I am confident that beginning this year, EPF will begin to fully revert to the guidance provided by SAA to ensure that they will be able to consistently deliver higher returns on investments for the foreseeable future.”
Afzanizam went on to explain that the SAA would allow EPF to plan its investment strategy in a more structured way, which would help ensure that investment returns are more effectively optimized against its risk tolerance.
At the same time, he also noted that EPF’s experienced fund managers and research team, along with its governance structure, would ensure that all investment decisions are based on data and knowledge.
Whether EPF can maintain good dividend rates going forward will largely depend on the investment climate, he said, but adhering to the SAA would help guide its investment strategy, with tactical asset allocation also in place to take advantage of prevailing market conditions. .
He shared: “In other words, EPF will always have the flexibility to adapt to market conditions and will react accordingly to offer respectable investment returns.”
Adding to that, Yeah praised EPF for having performed “extraordinarily good with its well diversified portfolio in terms of asset classes and markets” as one of the fundamental institutions underpinning the country’s economic resilience.
“In addition to high-quality governance and transparency, the quality of its customer service is on par or exceeds that of the private sector.
“More importantly, its long history in providing constant returns to millions of taxpayers generates confidence in the mandatory savings system that is a crucial pillar of the country’s social safety net,” he said.
Ahmed Razman shared similar sentiments, adding: “As the 12th largest pension fund in the world with assets close to RM1tril, over the years EPF has been professionally managed by its management and this has contributed to consistency in giving a good performance. in investment every year.
“They also practice a high level of corporate governance and therefore are not susceptible to any financial abuse or dubious investment decisions. These characteristics contribute to its stellar performance over the years. “
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