Shariah-compliant investments are gaining further ground in Asia – with growth from Islamic finance powerhouse Malaysia particularly strong and rising amounts of business from Indonesia – according to research published this week.
Among the reasons that Asia Shariah asset management industry is making progress, is thanks in part to “supportive government policies”, according to the latest Cerulli Associates research into the matter.
Growth continues to be concentrated in South-East Asia, with Malaysia remaining at the forefront with $28.4bn in Shariah mutual fund assets under management (AUM) in 2017, according to data from the Securities Commission (SC). Last year, Malaysia’s SC launched a five-year blueprint to grow the Shariah fund and wealth management sector, Cerulli said.
Indonesia grew its Shariah mutual fund market by 90% to nearly $2bn in AUM in 2017, benefitting from the 2015 lifting of the 15% limit on Shariah funds’ overseas investments, which paved the way for the launch of nine foreign-invested funds as of December 2017. The funds saw their total AUM soar to IDR7.8 trillion ($546m) in 2017, from just IDR945.2bn in 2016.
Besides allowing Shariah funds to fully invest overseas, market regulator Otoritas Jasa Keuangan (OJK) recently introduced a framework requiring fund managers to carve out dedicated units to manage existing Shariah funds. However, the market remains small and has few strategies to offer institutional investors, besides domestic and Asian Shariah fixed income and equities.
In the retail segment, despite the positive outlook for the launch of global Shariah funds the past two years, some Indonesian fund managers told Cerulli that selling agents are not marketing these products aggressively.
Some agents apparently see limited appetite for these funds, with the OJK expected to issue a regulation this year allowing conventional funds to fully invest offshore. As a result, global Shariah mutual funds are expected to “lose some of their luster” to global conventional funds.
Much of Asia’s Shariah asset management growth will continue to come from Malaysia in the future the report concluded. “While significant opportunity to manage Shariah-compliant assets will continue to come from state funds, Malaysia’s retail market is large and offers asset-gathering opportunities for fund managers,” the report said.
A 2018 survey by Cerulli shows that asset managers in the country expect demand for Shariah investments to come mostly from insurers and pensions over the next few years, with anticipated low demand from mass retail and mass affluent investors.