MALAYSIAN GOVT SECURITIES TO REMAIN ROBUST DESPITE RESTRUCTURING OF EPF ACCOUNTS

CIMB Investment Bank Bhd (CIMB IB) expects the impact of the Employee Provident Fund's (EPF) introduction of a third account, which allows for flexible withdrawals, on Malaysian Government Securities (MGS) and Government Investment Issues (GII) demand to be mitigated by strong net contributions, ample onshore liquidity, and government-linked investment company (GLIC) and government-linked company (GLC) repatriation.

The Employees Provident Fund (EPF) announced yesterday that the EPF Account Restructuring Initiative, which will take effect on May 11, will introduce a Flexible Account for short-term financial needs.

In a note, the investment bank said that the negative impact on the demand for MGS and GII in the near term is mitigated by persistently strong net contributions to EPF, which grew RM52.2 billion, and asset under management (AUM) growth (2023: +133 billion) amid robust labour markets and wage growth.

“An increase in EPF contributions arising from the transition of new civil servants to a defined contribution retirement plan, as well as incentives to encourage voluntary contributions by informal workers.

“Also strong onshore liquidity as evidenced by auction oversubscriptions; and GLC/GLIC/corporate repatriation and conversion of foreign investment income or export proceeds as supportive factors,” it said.

CIMB IB added that the potential outflows of EPF contributions could be moderated if the T20 segment is motivated to keep savings by the retention of a uniform dividend rate across all accounts for the time being.