Tuesday, March 13, 2012

EPF: By far the Biggest market mover

I know most people are happy when EPF announced 6% dividend for 2011 (I am). However, here are some facts to make you feel wow (or jittery) whether you are a local or foreign investor in Bursa.

  • EPF - Fund size of RM460.05 billion (as at 31 Dec 2011) with 35.6% invested into equity.
  • Total investments into equity RM167 billion.
  • Total market capitalization for Bursa = RM1.24 trillion. Hence, EPF probably holds 13.4% of total Bursa market value.

Note that EPF increased its investments into equity from 33.68% in 30 Sep 2010 to 35.6% in Dec 2011. How much more can they go? EPF will probably run out of ideas to put their money (or should I say our money?). They went into buying London properties recently...now Malaysians (you and I) own London properties as well. May not be a bad thing as there are such thing call diversification...as having 35% of our monies into Malaysian stocks may be a risky endeavour. You will never know, Malaysia may have a bad year or two, then what happens?

Imagine a few guys (in EPF) can make such a difference to the Malaysian market. So few can do so much! I am having the  jittery feeling now.

EPF says ‘selling spree’ was nothing unusual

KUALA LUMPUR, March 13 — The Employees Provident Fund (EPF) has denied any unusual activity in its recent surge in share disposals that dragged the share market down last week. This comes after The Star reported that the EPF along with its portfolio managers "dumped" a total 83.68 million shares on the open market on March 7, or about half the total daily trading volume which pulled down the benchmark FBM KLCI.

The move by EPF also sparked market rumours that the share disposals was timed with the next general election in mind as some analysts say that profit taking usually occurs just before the polls. Some brokers say that the reports of EPF's selldown had dampened market sentiment with many now taking a wait and see attitude on the sidelines.

When contacted EPF said that the pension fund had sold the shares in order to lock in profit so that it can pay higher dividends. Figures provided by EPF show that about 48 per cent of its gross investment income last year came from equities. It also holds 35.6 per cent of its investment portfolio in equities, or about RM167 billion, as at December 2011. Another 26.5 per cent of its portfolio is in government securities and 34.2 per cent in bonds and the two fixed income assets tend to offer lower dividends in line with the current low interest rate regime. EPF said that in order for the pension fund to pay higher dividends, it had to look to making money on equities.

It added that it sells shares based on timing and this period with the market at a high, was the right timing and noted that the disposals worth RM441 million on March 7 was only a very small portion of its giant RM167 billion equity portfolio. One broker said that EPF's move appeared to be right based on hindsight given that the market has now fallen off its near all time high since March 7. "The market is now spooked," he said.

EPF CEO Tan Sri Azlan Zainol was also reported to have said that the EPF did not intentionally distort the market but could not help making an impact due to the sheer size of the fund. “It is all unintentional. We transact over three million shares at any one time; of course the market would be distorted,” he was reported to have said. EPF paid a six per cent dividend last year, its highest in ten years.

The fund's gross investment income in 2011 was RM27.24 billion, up 13.18 per cent from 2010. The distortions, whether intentional or not, caused by EPF's size also strengthens perception that Bursa Malaysia is overly dominated by government and government linked investment institutions which analysts say hampers market liquidity.

The FBM KLCI had hit 1589 on March 6, which was close to its all time high of 1597 reached in July last year. It fell more than 15 points on March 7 however, the most since the start of the year.

My other articles on EPF:

What EPF did last quarter?

EPF significance in dictating Bursa

Serious Investing!

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