The Employees Provident Fund (EPF) has reported a 13% year-on-year decline in investment income for the first quarter of 2025 (1Q25), recording RM18.31 billion compared to RM20.99 billion in the same period last year. The subdued performance reflects heightened geopolitical risks and economic uncertainty that have weighed heavily on global financial markets. This marks the fund’s weakest first-quarter return since 1Q22, when RM15.85 billion was generated, underscoring the volatility brought on by shifting global trade dynamics. EPF Chief Executive Officer Ahmad Zulqarnain Onn attributed the downturn to early-year disruptions in global markets driven by trade frictions and policy uncertainties, particularly surrounding the United States. “Although the US tariffs were formally announced on 2 April, markets were already pricing in volatility earlier in the quarter, leading to weakened sentiment,” he said in a statement. The timing and pace of monetary easing across regions have also diverged, further dampening investor appetite for risk. Dr Mohd Afzanizam Abdul Rashid, Chief Economist at Bank Muamalat Malaysia Bhd, noted that the pullback in global equity markets was expected, particularly as equity investments accounted for 59% of EPF’s total income during the quarter. “While the Q1 performance was soft, we have seen signs of a rebound in global equities in May, which may continue into June,” he remarked, suggesting a more optimistic outlook for the remainder of the year. Ahmad Zulqarnain emphasised that EPF’s globally diversified portfolio has helped cushion the impact of market volatility, preserving long-term value for members. Afzanizam echoed this, highlighting that 48% of EPF’s asset base remains in fixed income, providing stability and potential capital appreciation as global interest rates ease. Looking ahead, analysts expect improvement in EPF’s returns during the second half of 2025, though uncertainties remain. Afzanizam stressed the importance of US trade policy developments, particularly as the 90-day pause on tariffs concludes in July, noting that elevated geopolitical risks and fiscal concerns in the US may continue to weigh on market sentiment. Vincent Lau, Head of Equity Sales at Rakuten Trade, also anticipates a recovery in global markets as tariff tensions ease. “We expect statements from the White House soon that could provide the clarity markets need. That would bode well for Malaysia’s economic recovery,” he said. Despite some downward revisions in FBM KLCI valuations, Lau pointed to falling bond yields and strong risk appetite as encouraging signs. “Bitcoin reaching all-time highs also signals renewed investor confidence. EPF’s diversified portfolio and past dividend strength put it in a favourable position for a rebound.” Economist Geoffrey Williams noted that the FBM KLCI gained 13% in mid-May following the tariff pause, although these gains were not sustained due to profit-taking and lingering uncertainty. He cautioned that a domestic-centric investment approach may be limiting returns and advocated for more aggressive overseas diversification. In the first quarter, international investments generated RM8 billion, or 44% of EPF’s total investment income. Domestic investments, which make up 62% of total assets, continue to provide consistent income through dividends, interest, and sukuk profits. As of March 2025, EPF’s total investment assets stood at RM1.26 trillion, with 38% of this invested in international markets. Notably, the FBM KLCI has declined approximately 8% year-to-date and has contracted around 14% since its 2018 peak. In contrast, the Dow Jones has regained some ground after falling 16% earlier this year and is now up over 75% since 2018, reflecting the stronger long-term performance of foreign equities. With the International Monetary Fund lowering its global growth forecast for 2025 to 2.8%, and Malaysia’s GDP growth likely to come in below the earlier projection of 4.5%–5.5%, the outlook remains cautious. However, EPF maintains it is well-positioned. “In a more challenging and uncertain market environment, the EPF maintains a dynamic and well-diversified portfolio to help safeguard value and manage downside risks,” said Ahmad Zulqarnain. “We continue to explore opportunities across both domestic and international markets to support sustainable, long-term returns for our members.” Of the total Q1 investment income, RM15.87 billion was attributed to Simpanan Konvensional and RM2.44 billion to Simpanan Syariah. The EPF reaffirmed its commitment to allocating over 70% of its annual investments domestically, aligning with the government’s Ekonomi Madani framework. Additionally, through its GEAR-uP initiative, the fund is actively building investment opportunities in the healthcare sector, further reinforcing its role as a long-term institutional investor. -The Star
