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Dubai: While most markets reeled in the pandemic chaos, investor appetite
for Shariah-compliant investments held up in the GCC, rating agency
Moody’s revealed, aiding growth of Islamic asset managers in the region.
Net inflows into some large Islamic funds in the GCC countries have
remained positive despite weaker markets and lower oil prices, in contrast
to the net outflows experience by many western peers, Moody’s noted.
his follows a few weeks after the rating agency flagged how asset managers
in the Gulf region faced earnings pressure this year from COVID-related
economic contraction and geopolitical uncertainties, warning then how
their profitability will face moderate to high pressure over the next 12-18
months
GCC economies under pressure
From parliamentary gridlock in Kuwait to paralyzed debt talks in Lebanon,
investors in the Middle East have been facing a raft of risks, compounded
by the biggest risk of them all being that current crude prices can’t balance
the budgets of most of the region’s energy exporters.
“Islamic fund managers in the GCC region benefit from bespoke mandates
with a range of affluent clients, including high net worth individuals, family
offices, sovereign wealth funds and other government institutions,” said
Vanessa Robert, a vice-president and senior credit officer at Moody’s.
“These investors generally have high risk tolerance and long investment
horizons.”
Globally, Islamic finance assets are seen growing at an annual growth rate
of 5.5 per cent to hit $3.4 trillion during the next five years. Moody’s
flagged that growth in Islamic assets under management would slow to 2
per cent this year and 4 per cent next year.
S&P Ratings echo rebound hopes
Earlier this week, S&P Global Ratings opined how it saw the $2.5 trillion
global Islamic finance industry on course to return to slow growth in 2021
after recovering from COVID-imposed lockdowns and subsequent
recessions in core Islamic finance countries.
S&P Global Ratings expects the Islamic finance industry to show low-to-
mid-single-digit growth in 2020-21 after 11.4 per cent in 2019 following
strong Sukuk market performance,
Islamic financing in Saudi Arabia will reach around 80 per cent of system-
wide loans within this period, from 78 per cent in 2019 and 70 per cent in
2013. This will bolster its position as the world’s largest Islamic finance
market. It had total Islamic finance assets of $339 billion as of March 2020,
leaving Malaysia a distant second with $145 billion.
Spurred issuances of Sukuk
A comprehensive set of Islamic finance regulations have spurred Saudi
banks to issue Sukuk, Islamic products are now listed on the main market,
and an Islamic mortgage refinancing business has been established, said
Ashraf Madani, vice-president and senior analyst at Moody’s.
A wave of mergers and acquisitions in Saudi Arabia and across the wider
Gulf region is also accelerating Islamic finance reach. In Malaysia,
innovative Shariah-compliant product offerings are driving growth in
Islamic assets management. These include Simpanan Shariah, a Shariah-
compliant employee provident fund.