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EPF investments in US will be income accretive to the fund – Economists

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Kuala Lumpur
– The Employees Provident Fund’s (EPF) move to increase its investments in the United States (US) by between US$3 billion (US$1=RM4.18) and US$4 billion for infrastructure projects would be income accretive to the fund, which would translate into better dividends.

Bank Islam Malaysia Bhd Chief Economist, Dr Mohd Afzanizam Abdul Rashid, said infrastructure spending was one of the important growth agendas for the US, given the current state of its infrastructure which are rather old and in dire need of reinvestments.

“We believe that this is a positive move for the EPF as it is part of their investment strategy to diversify their portfolio geographically.

“And we also believe such decision will be based on their strategic asset allocation (SAA), and there will be specific targets for each asset class that is also dependent on risk tolerance,” he told Bernama in an email interview.

He pointed out that this was a calculated risk, as large institutional investors, such as EPF, would resort to SAA when it came to making decisions regarding their investments.

The pension fund had declared a dividend rate of 5.70 per cent for 2016, with a total payout of RM37.08 billion, compared with the 6.4 per cent in 2015.

Mohd Afzanizam was commenting on Prime Minister Datuk Seri Najib Tun Razak’s recent announcement on EPF and Khazanah Nasional Bhd’s plans to expand their investments in the US.

Najib had also announced Malaysia Airlines Bhd’s decision to purchase 16 Boeing aircraft in the near future.

To-date, the EPF had invested close to US$7 billion in terms of equity in the US, while Khazanah Nasional, which has an office in the Silicon Valley, California, had invested about US$400 million in high technology companies.

Overseas investments accounted for about 29 per cent of the EPF’s total investment assets of RM731.11 billion.

In February this year, EPF Chief Executive Officer, Datuk Shahril Ridza Ridzuan, said the pension fund was actively looking for more investment opportunities overseas, as income from foreign assets was significant towards its performance.

He also emphasised the need to look for more interesting opportunities globally to counterbalance the impact of lower returns from the local equity market.

Meanwhile, the announcement on the additional investments by Malaysia had come at the right time as the US economy has been growing at a healthy clip, with its second-quarter gross domestic product rising by 3.0 per cent from 1.4 per cent previously and equity prices recording multiple highs during the year.

Business and consumer sentiments in the world’s largest economy were also improving, with the US manufacturing index rising to 58.8 and Consumer Confidence Index rising to 122.9 in August.

Notably, the US Federal Reserve (Fed) had raised the Fed Fund Rate by 100 basis points since December 2015.

“The US economy is on firmer footing as the monetary stimulus has been gradually removed. So, Malaysia is investing at a point when the US economy is improving.

“Perhaps the timing is right, considering that their nature of investment are going to be long term,” said Mohd Afzanizam.

He said the government should disseminate more information on the investment venture, with concise and brief data to allay concerns among the general public and minimise speculations.

The additional investments in the US would lead to possible foreign exchange gains if the US dollar strengthened in the future, especially if the Fed kept increasing interest rates, said another economist, adding that there was a likelihood of another round of interest rate hikes by year-end. – AFP