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Few products hindering Shariah funds in Malaysia

Even as growing numbers of multi-national asset managers are moving to set up shop in Malaysia, as they prepare to tap into the demand for Islamic fund management, an informal poll of market participants suggests that the industry's growth is being stymied by a lack of product innovation and range.
Kuala Lumpur, Malaysia
Skyline in the city of Kuala Lumpur, Malaysia, with the famous Petronas Towers standing in the middle.

The poll, of delegates attending an event in Kuala Lumpur last week, found almost 64% believed the Shariah-compliant fund industry has not grown more rapidly because of the inadequate product innovation and range that the market is offering.

Lack of demand for Shariah-compliant investment was cited  by 23% of those polled, who were attending a Fund Selector Asia Forum, while 14% said a lack of human capital was a factor in holding back the market’s development.

The Fund Selector Asia Forum delegates were polled on a range of industry-specific other issues, including business practices, industry outlook and regulations.

Threadneedle, Eastspring target market

Last week’s poll came in the wake of announcements of plans by two major asset managers –Threadneedle and Eastspring – to set up operations in Malaysia, in order to boost their respective offerings in the Shariah-compliant space.

Asked whether they felt Labuan had become less attractive to asset managers recently as an offshore financial centre, meanwhile, almost half the Fund Selector Asia Forum delegates surveyed said they felt that it had, but 25% said they still believed it to be “very important”.

Labuan, a group of Malaysian island off the coast of Malaysia’s Borneo region, has positioned itself, with Malaysia’s help, as a financial centre since 1990, and in 2008, the Labuan International Business & Financial Centre was established, overseen by the Labuan Financial Services Authority.

Other findings of the survey of Fund Selector Asia Forum delegates:

  • Around 25% of those surveyed felt such schemes as the Economic Transformation Programme and Malaysia My Second Home Programme – both of which are aimed at boosting the country’s economy by, respectively, targeting a minimum per capita income and attracting affluent foreigners to live in or retire to Malaysia – were important
  • Almost three out of four, or 72%, of the delegates, said they believed Malaysia should sign up to join the APEC fund passporting scheme, even though it has already also agreed to join in with its regional neighbours in the ASEAN fund passporting mechanism in October
  • More than half, or 54%, expressed a neutral view about the global economic outlook going forward, while about 42% said they were bullish. A majority (72%) said they nevertheless had a positive outlook about their own businesses’ prospects, with 22% ssaying they were neutral
  • As for asset classes, nearly 61% favoured equities, possibly reflecting a current mood in the market; 33% said they preferred a multi-asset portfolio, and 6% said they liked property investments

Part of the Mark Allen Group.