BUSINESS

SUSTAINABLE INVESTING DRIVING INTEREST IN MALAYSIA'S ESG, SHARIAH INVESTMENTS - MERCER

10/09/2021 01:51 PM

KUALA LUMPUR, Sept 10  -- Sustainable investing has driven interest in the broader environmental, social, and corporate governance (ESG) issues and Shariah-compliant investments in Malaysia, said asset management firm Mercer.

The firm’s Asia wealth business leader Janet Li said Malaysia’s main state-run pension funds - the Employees Provident Fund (EPF) and Kumpulan Wang Persaraan Diperbadankan (KWAP) - have both endorsed responsible investing.

The EPF became a signatory to the United-Nations-supported Principles for Responsible Investment in 2019 and KWAP has set a longer-term aspiration of being 100 per cent Shariah-compliant.

"We, therefore, expect that Shariah-compliant investments within the plans may increase over time. As of Dec 31, 2019, close to 37 per cent of investment assets were Shariah-compliant," she said.

According to Mercer's Asset Allocation Insights 2021 report, the combined asset allocations of EPF and KWAP have maintained a strong bias for domestic equities and Malaysian government fixed income securities.

"However, there have been changes in the asset allocation for the EPF, with an increase in foreign equity.

"There have also been increased efforts to diversify the portfolios, including allocations to alternatives, such as real assets and private equity," said the report.

In Hong Kong and Taiwan, ESG factors are being considered in investment decisions, while Indian mutual fund companies have begun launching ESG-focused products.

The South Korean and Philippine governments have each demonstrated a commitment to ESG through investments in green bonds, with South Korea specifically tying their objectives to social themes to support the economy in the choppy COVID-19 environment.

In addition, China has shown leadership in pursuing sustainable growth policies, with growing interest from Chinese asset owners and managers incorporating ESG in their investment approach, the report said.

It said over the past few years, Asia (excluding Japan) investors have held asset allocations fairly steady, with modest increases to alternatives over the full measurement period.

Hong Kong has a 60 per cent allocation to equities, whereas Taiwan has a 41 per cent allocation to equities and 10 per cent to alternatives.

South Korea has the highest allocation to alternatives among all Asia markets at 11 per cent, which has been increasing over the measurement period.

Conversely, India’s fixed income allocation is significant at close to 90 per cent, while over the full measurement period, Japan has transitioned from having one of the most conservatively positioned asset allocations to one of the most aggressive.

The fixed income allocation decreased from 59 per cent to 45 per cent, largely due to changes in the government pension investment fund.

Within the equity portfolio, assets have shifted to foreign equities, with the current period average of 48 per cent up from 34 per cent in the inaugural period.

The report found shifts in Taiwan and Malaysia have contributed to this, while foreign fixed income has remained a relatively low portion of the fixed income portfolio and remained largely flat over the measurement period at nine per cent.

“We expect continued growing interest in alternatives as investors seek to enhance portfolio yield amid sustained coronavirus-related uncertainty. The allocation tilt towards foreign equities is a natural evolution as funds develop and become more mature.

"Diversification from home markets helps to mitigate concentration risks and create more return drivers. It is encouraging to see the acceleration of ESG investments whether via an increase in market awareness or portfolio allocation," Li noted. 

-- BERNAMA

 

 


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