Islamic Finance gif
Over the last year, a number of sectors have proved a viable arena for investments within the Islamic finance and banking industry. These sectors are outlined in Figure 1:
These lucrative sectors have paved the way for Islamic financial investments in a number of countries. However, there is also a wider range of different potential investments for an investor to tap into.
2012 The Year of Investment Opportuni- ties 2012 is a landmark year for the global Is- lamic finance industry. The sector has seen a real growth spurt recently, due to an un- precedented rate of development in new, specialised Islamic financial indexes, in ad- dition to further general growth opportuni- ties for investments around the world. The most recent investment opportunity is the brain-child of Crescent Wealth and Thom- son Reuters, who collaborated to create a specialised index which will give investors the means to build a fully–fledged, Shariah- compliant equities portfolio in Australia.
Innovative company Crescent Wealth states that: “The Thomson Reuters Crescent Wealth Islamic Australian index is the only bench- marking tool of its kind used in the Austral- ian market, and a key step towards Islamic investment in Australia, which the investment manager expects to grow to as much as USD13 bil- lion in funds under management by 2019.” “Australian markets are stable, and have the attractive growth fundamentals that Islamic investors are looking for in today’s challenging macro-environment,” says Rushdi Siddiqui, Thomson Reuter’s global head of Islamic fi- nance and OIC Countries.
The index raises awareness of the potential of the companies listed on the Australian Securities Exchange for compliance with Is- lamic investment principles. Its founders hope to spread to include 143 securities on the index, which will have a combined market capi- talisation of more than USD160 billion. The index excludes banks, conventional financial stocks and companies with high levels of debt or leverage. According to the Cres- cent Wealth, Shariah-compliant financial companies will be reviewed on a quarterly basis for adherence with standards set by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).
proposition to offshore investors. “There is a huge untapped potential to grow Islamic- compliant investment in Australia, coming from investors here and in Asia and the Mid- dle East,” he says. Yassine adds that the index’s investment theme has broad appeal to conventional investors, particularly those with an ‘ultra- ethical’ investment strategy. He further says: “Investors will be attracted to the index’s weighting towards low levels of debt and lev- erage, low account receivables and the fact that companies which are compliant with Shariah principles invest a greater propor- tion of their funds back into the business, rather than letting it rest in cash or short- term investments.”
Figure 1: Lucrative Sectors for Invest- ment in 2011-2012
Sukuk Takaful
Real State Infrastructure
Energy and Resources Diagram by Tasnim Nazeer The total assets comprised within these
funds have been estimated to have a value of around USD60 bil-
lion in 2011, an increase from USD58 billion in 2010. Over the same time pe- riod, the total number of Shariah-compli- ant funds has increased to 876 in 2011, up from 812 in 2010. These statistics show the various effects which the economic climate has had on the profitability of Islamic funds
lion by the end of 2011. The groundbreaking report which Kuwait Finance House (KFH) Research released in early 2012 shows that the most considerable assets are found in the markets of Saudi Arabia and Malaysia, which are the two major hubs for Islamic fi- nance and banking.
Despite the various challenging conditions triggered by the global economic crisis, sig- nificant growth is still prevalent, as can be seen in these funds. Assets controlled by Is- lamic investment funds are expected to grow further in 2012, compared to 2011, despite the challenges facing the global economy. In addition, an increase in oil prices is antici- pated, giving a boost to the already lucrative oil industry. This will lead to an increase in the wealth of various Islamic hubs such as Saudi Arabia, which will lead to growth of the USD2 trillion+ industry.
The total assets comprised within these funds have been estimated to have a value of around USD60 billion in 2011, an in- crease from USD58 billion in 2010. Over the same time period, the total number of Shariah-compliant funds has increased to 876 in 2011, up from 812 in 2010. These statistics show the various effects which the economic climate has had on the profitabil- ity of Islamic funds.
If we consider the regional dis- tribution of Islamic funds, Saudi Arabia continues to remain the key market for Islamic investors, representing 42.4 percent of the industry’s value. Malaysia is also a wealthy Islamic hub, taking the second place with more than a quarter of the total assets, while 34 remaining countries contrib- ute the rest. In terms of average assets per fund, the US comes out as the clear prominent win- ner, with each fund managing USD516.9 million per fund. Saudi Arabia and South Africa trail be- hind, with only USD102.6 million and USD95.8 million, respectively, controlled per fund. However, the weighted average returns for each domicile show that among the top ten jurisdictions, only the Malay- sian, South African, Pakistani and Indonesian markets were profit- able in 2011, in terms of the total
assets held by funds.
Talal Yassine, managing director at Crescent Wealth, says that the index will help to sell Australian Islamic finance as an investment
In addition, the newly launched index is set to create ample investment opportunities around the world for potential investors and businesspeople wishing to tap into the lucra- tive Islamic financial sector. Across the globe, funds within the global Islamic investment industry are set to make a robust growth in 2012, since their assets topped USD60 bil-
Islamic investment funds are expected to increase generally. During 2011 the funds were targeted towards Saudi Arabia and Malaysia, with each country taking 27.5 per- cent and 23.0 percent of the market share respectively. Meanwhile, funds managed under a global mandate accounted for 26.6
2012 May Global Islamic Finance 15
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