Asian equities were still a hot favorite for global investors last year, with the region’s stocks attracting an estimated US$100 billion through mutual funds, according to a report from US-based mutual fund research and consulting company Strategic Insight.
The figure, it stated, is based on evaluating the global funds industry and adding up all allocations to Asia, including Japan and Australia.
Despite the positive news, the report added that Asian mutual fund companies were beneficiaries to only a miniscule portion of that figure as most of the funds were dominated by fund managers operating outside of the region: mainly from Europe, the US and other domiciles.
The uptrend has seen a reversal of sorts in 2011 with a sell-off in emerging markets causing flows to date diminishing by 90% from last year. However, Strategic Insight explained that the decline experienced is merely in the short-term, with a positive outlook for the medium and long-term with about US$1 trillion forecast to be invested into Asian financial markets over the next decade.
Therefore a concerted effort must be made for Asia-based asset management companies to attract investors to their funds. A compelling option would be through Shariah compliant funds.
The continuing effects of the global financial crisis have resulted in investors being more risk averse, but their risk appetite is slowly coming back. This is illustrated in Cerulli Associates’ recent report, which saw an increase (albeit marginal) in global equity funds at 45.4%, up 0.3% from 2010.
The figures were more prominent in the Shariah space, where Cerulli also notes that global equity funds saw an increase to 58.7% as at March 2011 compared to 54.4% last year, while fixed income funds declined as much as 5.2% from 29.8% to 24.6%.
Investing into Shariah compliant funds does not however guarantee immunity against any mishaps. Ernst & Young reported that about 27 Islamic funds were liquidated in 2009, primarily due to their assets under management being too small to be viable. However, Shariah compliant funds are still a viable alternative and have been shown to offer lower volatility when put up against conventional funds.
Europe will probably be a good place for Asian fund managers to start promoting their Shariah compliant offerings, as it has the largest interest in Asia-focused funds.