Tabung Haji expected to pay modest dividend for 2022 amid market turbulence, say economists

KUALA LUMPUR: The distribution of profit after zakat for financial year 2022 to be announced by will depend on the investment strategy adopted by its fund managers throughout last year.

Universiti Tun Abdul Razak economist Prof Barjoyai Bardai said looking at TH's previous strategy which was somewhat conservative, the dividend return for 2022 is expected to be modest due to the uncertain global equity market.

“With the financial situation such as equity market which is volatile due to the aggressive interest rate hikes by the throughout last year, many foreign investors had ‘run' and returned to the US market.

“Because the US equity market was volatile and downbeat, many investment institutions have changed their strategies to minimise risks rather than maximise profits.

“This includes TH which was seen as conservative in 2022 (based on financials up to September), as it felt it was better to safeguard capital and make a small profit than trying to maximise profit but would be exposed to capital risk which may be lost,” he said to Bernama.

As at Sept 30 Sept, 2022, TH's assets comprised 60.1% or RM52.79 billion in fixed income, real estate (8.7% or RM7.63 billion), domestic equity (16.5%; RM14.51 billion), foreign equity (5.1%; RM4.49 billion), private equity (1.1%; RM974 million), and money market (8.5%; RM7.44 billion).

Based on this composition, Barjoyai opined that TH's income will remain stable supported by the fixed income instruments.

Meanwhile, Associate Prof Dr Nuradli Ridzwan Shah Mohd Dali from the Economics and Muamalat Faculty, , concurred with this view, saying TH's dividend return for 2022 will be modest as the pilgrims fund practised safe investment following the global economic uncertainty.

“It is acknowledged that if we practise safe investment, the return will be modest.

“Nevertheless, I expect TH not to adopt this defensive strategy forever. It needs to change in line with the global economy,” he said.

Menara TM issue

On the issue relating to Menara TM, he said the implication faced by TH, if the decision is made to sell , Menara TM Semarak and Wisma TM Taman Desa, which is hotly debated currently, may impact TH which is one of the institutions that invested in the Menara ABS sukuk.

These properties form part of the ijarah sukuk issuance known as Menara ABS sukuk.

According to reports, Telekom Malaysia's decision to terminate most of its tenancy at its headquarters in Bangsar, Kuala Lumpur is expected to cause losses to the holders of Menara ABS sukuk. It is also understood that among the biggest holders of the sukuk is the Employees' Provident Fund (EPF).

Among the sukuk holders that would be affected by this move are institutional investors such as EPF and TH, and it would also impact the EPF members, besides TH depositors.

“The sale of these three towers may also depend on the situation…is the timing right to sell and, secondly, is the return on capital reasonable or appropriate with the investment that had been made?

“This is because this property investment certainly has potential for more return in capital gains and not on rental,” he said.

Rise in cost of haj, subsidy

Following the Covid-19 pandemic, Nuradli said the increase in cost charged by the Saudi Arabian government to perform haj pilgrimage cannot be avoided.

The increase in cost following the rise in taxes and various service charges does not affect only Malaysia, but also Indonesia or other countries that send their respective pilgrims to the haj pilgrimage.

The difference is that the actual cost paid by Malaysian pilgrims is partly covered by TH through subsidy or the Haj Financial Assistance.

“The actual cost of haj is RM28,632 per pilgrim, however, only RM10,980 is charged for B40 group pilgrims, and RM12,980 for non-B40 pilgrims.

“Here, the actual cost that is borne by the B40 pilgrims is only 38%, and non-B40 pilgrims pay 45%.

“The subsidy is borne by TH, that is, from profits or returns from its investments through shareholdings, plantation and other businesses,” explained Nuradli.

Nevertheless, the profits are also distributed to TH's depositors apart from assisting in covering for the haj cost which is increasing.

According to TH, the haj cost for the 1443 Hijrah/2022AD season was RM28,632 per pilgrim, compared with an earlier estimate of RM25,540 per pilgrim, while the haj cost for the 1440H/2019AD season was RM22,900 per person.

As of June 2022, TH said its expenditure increased by RM134.42 million to RM437.30 million, as the Haj Financial Assistance to haj pilgrims in the 1443H/2022AD continued to be borne by TH.

Proposals and hopes for the future

Going forward, Barjoyai expects the equity market to recover following the Fed's move to possibly slow down its interest rates hike, with the benchmark FTSE KLCI rebounding to the 1,600- to 1,700-point level.

This situation will also likely change TH's investment strategies by increasing or transferring its fixed investments to share investments, and subsequently giving better returns for 2023.

“For the long term, I believe TH can also broaden its investment instruments into the property sector and reduce its fixed income investments.

“This is because this (investment) instrument gives a small return and is fixed. Hence, may raise the question…whether this instrument is appropriate in Islamic investment,” said Barjoyai.

As for Nuradli, the challenge that awaits TH's fund managers will be bigger following the concern on the global economic recession and he hopes that the fund managers will continue to find the best strategies to navigate TH's investment journey.

“I hope TH will remain strong as a mechanism for Malaysians, specifically Muslims, to maintain their savings in TH and get reasonable dividends as depositors.

“I also hope the people will increase their savings from time to time in their objective to perform the fifth pillar of Islam, Insya-Allah,” he added.

Source : The Edge Markets

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