KUALA LUMPUR: AmInvestment Bank Bhd projects that mandatory Employees Provident Fund (EPF) contributions for non-citizen employees could channel up to RM1.7 billion in additional annual inflows into Malaysia’s domestic equity market.
According to its Sector Report, the estimate is based on the presence of 2.5 million foreign workers, a minimum monthly wage of RM1,700, combined employee and employer EPF contributions of 11% and 13%, respectively, and the assumption that 14% of EPF assets would flow into domestic equities, as indicated in the 2023 annual report.
The report states that the proposed EPF contribution rate for non-citizen employees with a new contract of employment is 11% for employees and 12-13% for employers, depending on salary compensation.
For employees with an existing contract of employment, the contribution rate is proposed to start at 2%, increasing in phases until it is on par with the contribution rate of Malaysian employees within six years.
The implementation of this initiative is subject to amendments to the EPF Act 1991.
Additionally, Prime Minister Datuk Seri Anwar Ibrahim has called for government-linked investment companies to reduce overseas investments and focus more on the domestic market, further helping the cause.
“Assuming the split between domestic and foreign equities is maintained, we estimate net inflows to domestic equities of RM17-23 billion, compared to the past five-year average of RM2 billion (between 2018 and 2023).
“This assumes annual inflows to equities of RM30-40 billion (based on historical trends) and that the domestic equity market share is maintained at 57% (2023 levels),” it said.
AmInvestment noted that the domestic equities market grew at a compound annual growth rate of 1% year-on-year (y-o-y) between 2018 and 2023, significantly lagging the fund management industry’s 6% y-o-y growth in assets under management.
“This lag was primarily driven by increased investments overseas, as the domestic share of the equities market fell by 17 percentage points to 57%, between 2018 and 2023,” it said.
Implying a high base, AmInvestment said the broader market delivered its best annual return in 14 years in 2024, particularly in sectors such as technology and plantations, due to tariff-driven supply chain realignment and expectations of stronger crude palm oil prices caused by supply tightness.
“We believe structural interest in data centres will persist, underlying our positive outlook for the construction and property sectors. Sectors that we are neutral on should not be entirely ignored, as pockets of opportunities exist within selected mini-themes,” it added. – Bernama
