Singapore stock valuation may gain 20% with CPF fund reallocation: report

It will also likely boost returns to CPF members, Morgan Stanley says.

Investing a portion of the Central Provident Fund (CPF) balances in Singapore’s equities may boost stock valuations, a report from Morgan Stanley suggested.

In a report, Morgan Stanley said allocating half of the annual $30b growth in CPF balances to Singapore equities could raise Singapore stock valuations by around 20%.

“We believe this would likely boost returns to CPF members as well as contributions to government revenues and Singapore's reserves. Outsourcing the management of these new allocations to local fund managers may be the best way to do this,” Morgan Stanley added.

Currently, most CPF funds are invested in Special Singapore Government Securities (SSGS), with their total amount slightly exceeding CPF balances, showing that CPF funds are largely allocated to coupon-bearing SSGS bonds.

Meanwhile, CPF members only invested 5% of their aggregate CPF balance in equities in comparison with Malaysia's pension EPF with 24% allocation to domestic equities.

However, as a retirement-focused fund, CPF prioritises capital preservation. Increasing equity exposure requires balancing higher potential returns with risk tolerance, especially for older members nearing retirement.

The report suggested outsourcing investment management to experienced local fund managers to maximise returns whilst minimising risks.

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