Going global adds diversity to an otherwise bland basket of local investments. “It is a good move to allow the EPF to increase its total assets in the international markets. A big chunk of its total assets are already invested in the Malaysian market,” says Choo Swee Kee, executive director of TA Investment Management Bhd.
The EPF has been progressively increasing its global exposure. Last year, an additional US$5.54 billion (RM17.51 billion) worth of investments were made overseas. As at Dec 31, 2011, the fund’s global investment assets contributed 13.37% of total assets. “Now, that is not alarming. Foreign investments will not increase quickly in a short period. I believe it will be be increased proportionately over time. However, there are risks when the assets reach the limit of 23%. That is close to a quarter of EPF’s total assets, which is significant,” opines Choo.
The EPF collects on average more than RM2 billion every month from its 13.15 million members. The members make a compulsory monthly contribution that is capped at 11% while employers can add up to 13%. Membership is mandatory for working Malaysian citizens and permanent residents. ” The move to increase international exposure is aimed at enhancing returns. It allows the EPF to seek opportunities to improve its performance. This is as opposed to investing to maintain the value of its existing assets,” says Danny Wong, CEO and executive director of Areca Capital Sdn Bhd.
Volatility across global markets is expected to continue and the global investment outlook is generally cautious. “Only certain markets in Asia, such as Singapore, Hong Kong and Thailand, are trading at a discount. Most institutional and retail investors have adopted a wait-and-see approach and are holding cash,” says Azian Abu Bakar, executive director of Apex Investment Services Bhd.
While the move to allow the EPF to increase its international exposure is seen as beneficial, returns made will depend on the timing of the investment. “It may not be wise to increase its international exposure now. Perhaps, [it should] wait till the markets are more stable.”
Wong, however, says the emphasis should be on asset allocation. “For instance, since the US recovery is not as strong as expected, it is quite good to go into its fixed-income papers now. Besides that, it also depends on the sectors, asset classes and markets that the EPF moves into.”
“While it is wise to move part of the portfolio offshore, I am not sure about the EPF’s competency in managing global assets. It makes sense for it to appoint external fund managers to manage the foreign portfolios,” adds Wong.