What caused volatility in domestic and emerging market equities in Q3 2021?

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Concerns over rising inflation and interest rates contributed to volatility in domestic and emerging market equities during the third quarter of 2021.

During the third quarter of 2021, significant fluctuations were observed in both domestic and emerging market equity markets. This market uncertainty was primarily attributed to growing concerns regarding upward trends in inflation and interest rates. Despite this volatility, equities in developed economies experienced a continued recovery, which presented the Employees Provident Fund (EPF) with opportunities to achieve additional gains.
Equities as a Primary Income Driver

Equities served as the principal contributor to the EPF's overall gross investment income. In Q3 2021, this asset class generated RM7.50 billion, representing 54 per cent of the total gross investment income. While this segment was a strong performer, the EPF prudently wrote down RM0.11 billion for listed equities during the quarter as part of its internal policies to maintain a healthy portfolio. This compares to a write-down of RM0.13 billion in the same quarter of the previous year.
Fixed Income Performance and Market Yields

The fixed income instruments segment contributed RM5 billion to the EPF's gross investment income in Q3 2021, accounting for 36 per cent of the total. This figure was lower than the RM8.18 billion generated in Q3 2020, a decrease attributed to reduced trading gains. This performance aligns with the observation of higher market yields in Q3 2021 compared to the corresponding period in the prior year.
Overseas Investments and Overall Asset Value

Overseas investments played a substantial role in the EPF's income generation, with RM8.10 billion earned in Q3 2021, constituting 58 per cent of the total gross investment income for the quarter. As of September 2021, the EPF's total investment assets reached RM988.55 billion, with 36 per cent of this value allocated to overseas investments. This international exposure helped to offset some of the volatility experienced in domestic and emerging markets.

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What caused volatility in domestic and emerging market equities in Q3 2021?

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