Home > Malaysia
EPF Eyeing Syariah-Compliant Stocks For Its RM100bil Fund
Heavily favoured: At present, 45 of the EPF’s investments are compliant and the fund expects to grow its syariah asset base by RM25bil a year.
June 24th, 2016 | 09:52 AM | 1720 views
PETALING JAYA, MALAYSIA
Syariah-compliant counters may outperform non-compliant companies on Bursa Malaysia, thanks to the growth in demand for assets from institutions such as the Employees Provident Fund (EPF), according to JP Morgan Research.
In a report, the firm said that valuations for compliant stocks could stretch higher as more funds are directed towards Islamic-based investments.
An example of this is the EPF’s RM100bil fund that will exclusively invest in syariah assets.
“As it is, syariah-compliant sectors including construction, energy, healthcare, property, plantation and utilities have higher average earnings multiples. The EPF’s equity investments account for 29% of the total FBM KLCI market capitalisation. If other Government-linked funds follow suit, then the impact could be significant,” it said.
At present, 45% of the EPF’s investments are compliant with the fund expecting to grow its syariah asset base by RM25bil a year. The initial fund size of RM100bil represents 14.7% of the EPF’s total assets under management (AUM) of RM682bil.
With more of the pension fund’s members showing a preference for Islamic-based investing, it helps for companies to be syariah-compliant, as there is a high likelihood that the funds will grow, according to the research house.
EPF members can register to transfer their savings into the new syariah-compliant offshoot beginning Aug 8, with the fund commencing in 2017.
About RM282bil of the EPF’s AUM are invested in equities. Another sizeable Government-linked fund, Retirement Fund Inc (KWAP), invests RM39bil out of RM120bil in AUM into equities.
Five of the major Government-linked institutional investors – the EPF, KWAP, the Social Security Organisation, Lembaga Tabung Haji and Permodalan Nasional Bhd – hold RM347bil worth of equities, or about a third of the total AUM of RM1.15 trillion, according to JP Morgan.
With local institutions controlling a large share of equities available on Bursa Malaysia, syariah-compliant companies could see more buying attention in their shares.
“As the selection of investments become more syariah-focused, we would expect valuations between syariah and non-syariah-compliant sectors to diverge.”
According to JP Morgan, sectors that are trading at lower valuations include real estate investment trusts, gaming, media and banks.
Present valuations already indicate that syariah-compliant sectors are heavily favoured by investors. For example, the healthcare and telecommunications segments carry a one-year forward average earnings multiple of 24.8 times and 20 times, respectively.
In contrast, non-compliant sectors such as gaming command a valuation of just 14 times forward earnings, while banks are valued at 10.3 times.
Source:
courtesy of THE STAR
by Afiq Isa
If you have any stories or news that you would like to share with the global online community, please feel free to share it with us by contacting us directly at [email protected]