KUALA LUMPUR (March 7): The 2% Employees Provident Fund (EPF) mandate for foreign workers, which will only take effect in the fourth quarter of 2025 (4Q2025) instead of immediately as feared, provides a reprieve for corporate earnings this year.

Sectors such as technology, gloves, construction and plantation, which rely heavily on foreign labour, are expected to experience minimal impact.

On Thursday, Finance Minister II Datuk Seri Amir Hamzah Azizan announced that the 2% EPF mandate for foreign workers, which was passed into law on the same day, will only take effect later this year.

Under the scheme, employers will match employees' contribution of 2% to the EPF.

This is lower than the 11% employee contribution and the 12% to 13% employer contribution required for Malaysians.

The Federation of Malaysian Manufacturers had flagged an increase in wage costs, which included the implementation of mandatory EPF contributions for foreign workers, as one of the main reasons costs will go up for them this year. Almost half of manufacturers surveyed by the industry body expected operation costs to go up by 5% to 10% this year.

MIDF Research estimated a marginal 0.2% corporate earnings drop this year due to the new policy, lowering its growth forecasts for sectors like construction, consumer, energy, healthcare, and others from 5.0% to 4.8% for calendar year 2025.

The firm is, however, reassessing local market equity valuations for a potential downgrade, due to foreign fund outflows and rising economic risks, particularly from US tariff threats.

Consequently, its targets for the FBM KLCI (1,800 points), FBM Hijrah (14,500 points), and FBM70 (20,400 points) are under review for a potential downgrade.

All in all, MIDF recommended a defensive investment strategy, amid increased volatility and uncertainty.

It advised investors to focus on stocks in sectors like banking, real estate investment trusts (REITs), utilities, healthcare, and consumer staples, which offer consistent dividends and stable earnings.

MIDF said these defensive stocks can help mitigate downside risks while still holding potential for price appreciation due to undervaluation.

Its top picks include Leong Hup International Bhd (KL:LHI) and Pavilion REIT (KL:PAVREIT), as well as Axis REIT (KL:AXREIT).

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Parliament approves mandatory EPF contribution for foreign workers, implementation likely in 4Q2025