Should the EPF gamble with public money by investing on junk Stocks
EPF should not gamble with Public Money says analyst
By: R. M. B. Senanayake
The EPF has defended their investments in the stock market. But it has missed the point of the criticism leveled by the public. No one is opposing the EPF investing in the stock market. But the EPF should not gamble with the workers money for they are trustees only. Losses that may arise from any unwise investments will be the lot of the workers who contribute to the EPF. The EPF had invested about Rs 32 billion in 76 public quoted companies according to the answer given to Parliament a few months ago. There are stocks which are of investment grade, some which are not so but yet good and others which are junk. The Stock Exchange earlier used to insist on a track record of 3 years profitability before granting a listing on the Stock Exchange Board. But the Central Bank made it mandatory for all registered Finance Companies to be listed and several such companies now listed are far below investment grade.
Some don’t even fulfill the minimum capital and liquidity requirements prescribed by the Central Bank. There are several other companies which are also far below investment grade. The highly capitalized and sound companies are included in the Milanka Index. But many others are junk with some trading at prices way above prudent earnings multiples and several times their net asset values. These shares are also not liquid. Of course it is possible to make profits by trading in such shares even if they are below investment grade and are even Junk. But should the EPF do so? In my view not since the risk of loss is high.
The EPF should take a lesson from the foreign Fund Managers who will not invest in illiquid stocks because they can’t get out of them if they fail to deliver. The EPF for example invested in Galadari Hotel which has no record of profitability. That investment too was at a price far in excess of its intrinsic value based on fundamentals. Here is what the Economist magazine said about the Millennium Dome at Greenwich which was funded from the National Lottery “ If you set up a supply of” free” money and give committees of the “great” and the “good” a license to spend it on favored projects, a lot of it is bound to be wasted. The money entrusted to the EPF for investment is money of the workers and hence the EPF should invest such moneys only in investment grade equities or bonds. I don’t think the EPF should be trading in shares for quick profits.
The writer is an economist and is the General Manager of a Colombo based stock brokering firm. You can reach him via raja.senanayake712@gmail.com
