Shares of KWAP-linked companies on Bursa Malaysia may start to weaken?

Kumpulan Wang Amanah Persaraan or KWAP is the country's third biggest institutional investor.

Along with the Employees Provident Fund, Permodalan Nasional Berhad, Lembaga Tabung Haji and others to name a few, KWAP manages billions of ringgit.

The cash pile belongs to the nation's estimated 1.7 million civil servants who make monthly deductions into the pension management fund.

Following the government's announcement last Wednesday, anticipation is high that billions of KWAP's cash or market capitalisation in several Bursa Malysia-listed firms are expected to dip and may gradually lose value starting from today.

Where does KWAP invest its money?

KWAP or the Retirement Fund (Inc) is the country's third largest retirement fund with a RM200 billion fund size target by 2025.

The fund has achieved a total gross fund size of RM184.5 billion as at July 2023.

Deputy Finance Minister 1 Datuk Seri Ahmad Maslan said recently the funds are invested in fixed income (40 per cent), public equity (40 per cent), private equity (10 per cent) and real estate (10 per cent).

KWAP invests 80 per cent of its investments in the country, while 20 per cent is invested abroad Ahmad told the media at KWAP's Contributors Forum 2023 last year.

Ahmad said among KWAP's investments include government-linked investment companies (GLICs) and government-linked companies (GLCs) which play a critical role in ensuring the positive performance of the Malaysian economy. 

These GLIC and GLC companies have succeeded in creating job opportunities in stimulating the local economy and attracting international investors. 

Since KWAP's incorporation in March 2007 up to July 2023, its cumulative contribution fund stood at about RM57.4 billion out of the total gross fund size of approximately RM184.5 billion.

The contribution collection comprises RM15.3 billion from federal government contribution, RM25.8 billion from government share and RM16.3 billion from employers’ contribution which consist of statutory bodies, local authorities and secondment agencies. 

Currently, there are 482 contributing agencies in Malaysia, with 192 employers from statutory bodies, 151 from local authorities and 139 from secondment agencies, contributing for approximately 177,000 employees nationwide who are under the public sector pension scheme.

Will the government save money from this move? 

The bone of contention among many civil servants right now is that the pension scheme should not be abolished.

This is because civil servants make deductions from their salaries to KWAP and the government does not fork out a single cent, retired chief clerk Shamsiah Musa told DagangNews.com.

Is this true?

Does KWAP still need cash injection from the government?

Is the government bleeding financially topping up KWAP's coffers?

Since its inception, KWAP was supposed to stand on its own as a solid pension organisation fund.

However, it is understood that KWAP still does not have the financial muscle just yet.

Thus, the government still has to support KWAP all this time by injecting additional cash," a source told DagangNews.

How much can the government save?

How much can the government save now that new hirings of civil servants will no longer be eligible for pension?

"My quick take is that this can be deemed as part of the government's fiscal reforms. 

The savings can be rechannelled towards development spending which can improve the country’s productive capacity in the long term," Mohd Afzanizam Abdul Rashid told DagangNews.com.

He added furthermore, it can help to reduce the fiscal deficits which ultimately can bring down the government's debt level.

Afzanizam who is Bank Muamalat chief economist said the abolition of the pension scheme will enhance the fiscal space and will make government financial position more resilient.

Government should walk the talk

Social media is already abuzz with this issue and many lambast the government for its double standards.

Netizens want the government to walk the talk by hiving off the pension schemes of its elected representatives, members of parliaments, excos, politicians and so many others.

These includes numerous allowances for being a parliamentarian, minister, government-linked company director/chairman and a multitude of other incentives under the sun which are splashed on the officials even for a lifetime.

Austerity measures are good but when pointing the gun, the government must ensure the gun will not backfire in its face.

Which counters will be the casualties?

It's hard to gauge which Bursa listed or even non-listed firms will be affected by the government's saving measure.

But what's for sure right now is that KWAP's directors must now go back to the drawing board and rejig its investment strategies to ensure a steady recurrent income stream to provide providence in the retirement years for the country's 1.7 million pensioners. - DagangNews.com