The big sale is on

EVERYBODY knows that it is never the right time to sell stocks when the market is bearish. However, when one sees funds divesting in a bearish environment, it reflects their poor asset profile and risk management.

It cannot be helped but be noticed that Lembaga Tabung Haji (TH) has been selling down its stakes in listed companies. The divestment of its shares in companies such as Cahya Mata Sarawak Bhd, Ranhill Bhd, Malaysia Resources Corp Bhd and several other listed companies is quite obvious.

The fund has a stake in Eastern & Oriental Bhd that is undertaking fundraising, which it is not likely to subscribe to.

It should not come as a surprise to anyone who has been following the developments at the fund, which is going through a major overhaul after it was found to have paid out dividends it could not afford. Among others, an audit revealed that the fund was paying dividends when it could not afford to in the years 2016 and 2017.

For 2018, TH declared a measly dividend of 1.25%, following a restructuring that involved the government setting up a special-purpose vehicle (SPV) that raised up to Rm20bil to buy over its assets.

The SPV is to dispose of the assets, which include shares in listed companies, gradually to allow the fund to recover its money. Hence, the current divestment by TH of its equity stakes.

More than paying the yearly dividends, TH also needs money to meet redemptions.

The fund used to pay hefty dividends, attracting many investors who put in an extremely high amount of their savings to take advantage of the superior returns. The highest amount was Rm190mil that was put in by a former minister.

The original purpose of the savings function of the fund was to encourage Muslims to put aside some of their earnings for their pilgrimage. However, because of its superior returns compared to banks and the government backing it, many took advantage of the fund.

TH’S disposal of its stakes in listed companies will bog down the share price of these companies, unless their fundamentals change and there is a major buying interest to absorb the fund’s selling.