Aberdeen to debut Asia funds as stocks rebound

  • Business
  • Wednesday, 29 Aug 2012

KUALA LUMPUR: Aberdeen Asset Management Plc plans to start its first syariah-compliant stock funds targeted at Asian individuals as regional economies expand at more than 30 times the pace of the United Kingdom.

The company, headquartered in Scotland and overseeing US$286.5bil, will run the investments out of Malaysia once it gets regulatory approval, Abdul Jalil Abdul Rasheed, chief executive officer of Aberdeen Islamic Asset Management Sdn Bhd in Kuala Lumpur, said in an Aug 24 e-mail.

The Dow Jones Islamic Market World Index of shares has rebounded 8.4% in 2012, after dropping last year for the first time since 2008.

Developing economies in Asia will expand 7.1% this year, compared with 0.2% in the UK, 2% in the United States and a contraction of 0.3% in the euro area, the International Monetary Fund forecast on July 16. A shortage of global Islamic products is hindering growth in the syariah- compliant fund-management industry, according to CIMB GROUP HOLDINGS BHD in Kuala Lumpur.

“Asia’s economic growth prospects are good and that’s the primary driver for the Islamic fund management industry’s expansion,” Alhami Mohd Abdan, head of international finance and capital markets at Kuala Lumpur-based OCBC Al-Amin Bank Bhd, a unit of Singapore’s Oversea-Chinese Banking Corp, said in an Aug 24 interview. “There’s an increasing pool of wealth.”

The Dow Jones Islamic Market World Index is outperforming benchmarks in the UK and US in 2012, after falling 7.1% in 2011. The FTSE-100 Index is up 3.7% and the Dow Jones Industrial Average has advanced 7.4%.

Syariah law forbids investment in companies involved in activities deemed as unethical such as gambling, prostitution, and alcohol- related businesses.

Aberdeen joins San Mateo, California-based Franklin Resources Inc and India’s Reliance Capital Asset Management Ltd in setting up funds in Malaysia to tap Muslim investors.

Incomes in Asia excluding Japan will increase by an average 18% annually between 2011 and 2015, more than 5.7% in Europe and 6.9% in the United States, according to a Feb 18 statement from Kuala Lumpur-based KFH Research Ltd, a unit of Kuwait Finance House.

The US$1.3 trillion syariah-compliant finance industry is expanding at an average annual rate of 15%, according to a June report from Malaysia’s Securities Commission. The Islamic Financial Services Board in Kuala Lumpur predicts the market will reach US$2.8 trillion by 2015.

A shortage of suitable investments outside the key Islamic centres of Malaysia and the Middle East is limiting the number of syariah-compliant fund-management companies, even amid an 86 % rise in sales of sukuk this year, according to Kuala Lumpur-based CIMB Islamic Bank Bhd. — Bloomberg

Worldwide issuance of notes that comply with Islam’s ban on interest reached $32.6 bil this year, approaching the record of $36.7 bil in 2011, according to data compiled by Bloomberg. Sales of local-currency sukuk in Malaysia totaled a record 75.6 bil ringgit ($24.3 bil) last year.

“Outside of Malaysia and the Middle East, which have plenty of options in sukuk and equity investments as well as money markets, there aren’t many instruments for Islamic fund management companies,” Mohamad Safri Shahul Hamid, deputy chief executive officer at CIMB Islamic Bank, a unit of CIMB Group, said in an interview yesterday.

Record-Low Yields

Record-low yields on Islamic bonds are encouraging the increase in 2012 issuance. Average yields fell 31 basis points, or 0.31 %age point, this quarter to 3.13 % and touched an all-time low of 3.11 % on Aug. 7, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The difference between the average and the London interbank offered rate, or Libor, narrowed 35 basis points to 205 basis points.

Syariah-compliant notes returned 6.8 % in 2012, according to the HSBC index, while debt in developing markets climbed 12.6 %, JPMorgan Chase & Co.’s EMBI Global Composite Index shows.

The Bloomberg Malaysian Sukuk Ex-MYR Index, which tracks non-ringgit denominated sukuk listed in the Southeast Asian nation, was little changed at 109.396 yesterday. It advanced 4.8 % this year.

Diversifying Investments

The evolving Islamic finance industry and the introduction of new, innovative products will help support growth in fund management companies, according to the Malaysian central bank’s Syariah Advisory Council.

Engku Rabiah Adawiah Engku Ali, who sits on the board, cited the sale of perpetual bonds by Malaysian Airline System Bhd., the country’s flagship carrier, as an example. It was a debut sale of such securities, which have no set maturity, in the world’s biggest market for sukuk.

“Some investors want diversification so they invest in all types of funds including Islamic funds, which invest in different types of companies to non-Islamic funds,” Engku Rabiah said.

--Editors: Simon Harvey, Sandy Hendry

To contact the reporter on this story: Liau Y-Sing in Kuala Lumpur at yliau@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net 08-27-12 2358EDT

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