The Employees Provident Fund (EPF) will find it tough to consistently pay high dividends as uncertainty over the prospects of major economies could have a big bearing on open economies like Malaysia, economists said.
They expect the EPF dividend payment to ease to around 4 per cent to 5 per cent this year, from nearly 6 per cent in 2010.
Malaysia Rating Corp Bhd (MARC) chief economist Nor Zahidi Alias said as external trade and portfolio flows influence financial market performance, the Malaysian financial market could experience some knee-jerk reactions if risk aversion starts to escalate.
Nor Zahidi Alias said he would not be surprised if the present market correction continues in the next few months, especially when the overall sentiment is soured by the still struggling European economies and persistently high unemployment in the US.
"Such developments will no doubt have negative repercussions on Malaysia's external sector. Therefore, paying consistently high dividends will be challenging not only for the EPF, but also for other asset managers," he said.
Among the macro factors that will affect EPF's performance in 2011 are the country's gross domestic (GDP) growth, inflation, oil prices, interest rates and ringgit exchange rates.
"Based on the moderate gross domestic product (GDP) growth anticipated at between 5 per cent and 6 per cent this year, we expect EPF's dividend payout to also ease to the 5 per cent average level," RAM Holdings group chief economist Dr Yeah Kim Leng said.
Over the last 10 years, EPF's dividend payout ranged between 4.25 per cent and 5.8 per cent annually with an average of 5 per cent. The highest dividend rate ever paid was 8.5 per cent in 1983 and 1986.
Last year, EPF's top-of-the-range payout of 5.8 per cent corresponds to a strong rebound of the economy where the GDP expanded 7.2 per cent following a contraction of 1.7 per cent during the global financial turmoil in 2009.
EPF's major challenge, Yeah said, is to find investible instruments for the RM10 billion-RM12 billion net contributions that it will receive this year.
Besides that, he said, the pension fund would find it hard enhancing or rebalancing its portfolio towards safe and higher yielding asset classes to achieve the highest possible returns without compromising its mandate of capital preservation.
EPF is one of Asia's largest pension funds with a total asset of RM440.5 billion as at December 31 last year.
Allianz Life Insurance Malaysia Bhd chief investment officer Esther Ong estimates EPF dividend payout to be between 4 per cent and 5 per cent this term.
She said it may not be easy for EPF to sustain its performance this year unless some gains earned in better years previously are being used for distribution this year.
Ong believes that due to a more challenging macro environment, higher rates are expected for the bond portfolio.
"Meanwhile, we anticipate a more moderate return from equities given rising inflationary risks and the more moderate economic recovery path could result in lower earnings growth compared to last year," she noted.
In retrospect, equities were the largest contributor to the EPF's gross investment income in 2010, representing 45.45 per cent of its total gross investment income.
A total of RM10.94 billion was earned by EPF from equities last year, reflecting a significant 125.69 per cent increase from RM4.85 billion earned in 2009.
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Dividend growth challenge http://www.btimes.com.my/Current_News/BTIMES/articles/epf08/Article/index_html#ixzz1GagFvs9P
