Pensioners should not be worried by EPF’s increased stake in FGVH, economists say

KUALA LUMPUR, Jan 2 — Pensioners do not have to be unduly worried about the Employees Provident Fund (EPF) increasing its shares in Felda Global Ventures Holding Bhd (FGVH), economists have said.

FGVH’s shares have traded at a downward trend since July and even dipped briefly below its listing price of RM 4.55 twice in the past two months, but has stayed steadily above the RM4.60 region for most of December. It closed at RM4.61 a share today.

EPF had consistently increased its stake in the plantation giant in a run from November 28 to December 17 to hit 7.88 per cent, up from its 5.07 per cent stake on June 29.

Azrul Azwar Ahmad Tajudin, Bank Islam’s chief economist, said that pensioners should not worry unless EPF “buys too much when they should be buying better performing stocks in industries with ‘buy’ recommendations.”

“It depends on how much they spend and how big is their exposure to the palm oil industry on their portfolio,” he told The Malaysian Insider.

Dr Yeah Kim Leng, RAM Holdings Berhad’s chief economist, acknowledged that people may have concerns that the country’s largest pension fund is exposing itself too much to FGVH.

“Of course, it raises concern if the stocks don’t perform in the long run, it may affect performance in the long run.”

But Yeah said pensioners “should not be unduly worried because EPF’s portfolio is quite diversified” so the FGVH shares will not “pose a big risk”, but said it would still be “prudent” to ensure that there are “no undue excessive risks”.

He said that FGVH remains a “relatively small component in (EPF’s) total portfolio”, pointing out that EPF has “considerable clout” with its investment portfolio of close to RM400 billion.

Both economists said that it was possible that EPF was increasing its stake in FGVH, Malaysia’s largest listing last year, to keep its share prices up.

Azrul suggested that EPF could have been asked to buy shares in FGVH in an effort to “provide support” to the share prices.

“When it (EPF) goes in, it should support the price not to fall below a certain level,” he said, adding that pensioners can be assured that EPF would have conducted the necessary due diligence before buying shares.

Yeah said that EPF could be “providing support” to the FGVH counter, saying that “it is one of strategic importance” and it would be “imperative” that it doesn’t collapse.

“This is a strategic counter given that you have a large number of shareholders who have a stake in the performance of the company,” he said, pointing out that a sizeable number of them are Felda settlers.

Felda settlers and their children, who amount to some 112,635 families nationwide, are seen as an important vote bank for the ruling Barisan Nasional (BN) coalition for this year’s elections.

But the National Association of Felda Settlers’ Children (ANAK) and several opposition leaders have held a giant rally here in July to protest FGVH’s listing.

Last Friday, ANAK’s leader Mazlan Aliman organised another rally attended by over a thousand people, which he said was needed to save FELDA from a “conspirary” to reduce FGVH majority shareholder, Felda Investment Co-operatives (KPF)’s — and by extension, the settlers’ — stake in the palm oil giant.

Yeah said EPF may be taking a long-term approach and is “confident that this stock can outperform the required return in the long-run.”

He said the palm oil industry is of “strategic importance”, saying that demand for palm oil for use in the food industry and as bio-fuel will keep the long-term prospects of the industry “quite favourable.”

“Palm oil prospects still remain favourable in the long run” despite increasing competition from palm oil plantations in neighbouring Indonesia, he said.

Azrul agreed that the increased stakes could also be due to the fact that EPF sees potential in FGVH.

Due to the current downward trend in crude palm oil (CPO) prices, Azrul suggested that investors limit their exposure to the palm oil industry.

But he said that buying into a blue-chip firm with links to the palm oil industry like FGVH “could be a good investment” if the investor foresees CPO prices growing stronger.

“Although we’ve seen a downturn in (FGVH) price, it all depends on what is your outlook on the industry and CPO price. If you foresee the CPO price to recover in the next six months to one year...then it is not a bad idea to buy palm oil stock when the stock (price) is at a very low level.”

“Come to think of it, FGVH at the current level...is a good entry level (stock), it’s cheap,” he said, saying that this could be another reason that EPF increased its stake.

EPF had in September said that it was buying into FGVH as it had an extended and positive view on the plantation sector, which is one of the cyclical sectors which has its ups and downs.

FGVH’s last trade on December 26 was RM4.56, one sen above its initial public offering (IPO) price, the lowest closing price for the whole month.

On December 21, EPF started trimming its stake in FGVH to 7.87 per cent, before cutting it down to 7.75 per cent on December 26.

On December 26, EPF increased to 5.34 per cent its stake in IHH Healthcare Berhad, which has been trading in the region of RM3.30 and RM3.40 for the past two months, well above its listing price of RM2.85.

Azrul described the well-performing IHH, the second largest IPO in Malaysia last year, as a “good buy”, saying that the healthcare industry has a positive long-term outlook.