The year has started off with less than encouraging news on the global economy, which has been predicted by one analyst to see a slowdown from 3% in 2011 to 2.5% in 2012. Even the International Monetary Fund (IMF) is looking to revise its forecast for the year from its initial 4% growth.
While Asia remains at the forefront of the investment space, the ongoing Eurozone debt crisis has obviously had sapped investor confidence in the euro region. Analysts believe that recovery could be severely undermined if Italy’s debt woes worsen. Any hope of an imminent recovery has been dampened following a recent report detailing an internal IMF memo that stated that the organization was losing confidence in Greece’s ability to clean up its public finances and work off its mountain of debt.
However, HSBC Global Asset Management believes that a silver lining exists in the dark clouds that loom over this uncertain period, particularly for those with a long-term perspective. It points out that many companies are in solid financial shape, and are applying austerity measures that are likely to reduce the probability of a default and instead provide a positive outlook for corporate bonds, especially at the high-yield end of the spectrum, and in Asia where fundamentals are relatively stronger.
One reason for strong performance of these funds could perhaps be the backing of strong oil prices over recent months. Also on the 26th December 2011 Saudi Arabia posted a surplus of SAR306 billion (US$81.6 billion), with revenues reaching SAR1.11 trillion (US$296 billion) — double the forecast figure of SAR540 billion (US$144 billion). This is likely to further boost the performance of funds in all asset classes in Saudi Arabia in the coming months.
Another asset class predicted to perform well this year is fixed income. This is because Sukuk issuances look set to hover around the US$50-60 billion range as Malaysia and Saudi Arabia continue to dominate this space. Jarmo Kotilaine, the chief economist at National Commercial Bank (NCB), Saudi Arabia’s largest bank, said that funds raised through Sukuk in the GCC rose to nearly US$17 billion in the first nine months of 2011 with corporate issuances making up around 87% or US$$14.6 billion of total issuance.
Malaysia looks to retain its lead in the Sukuk market in terms of volume, as it begins the year with the pending RM$30.6 billion (US$9.68 billion) issuance by Projek Lebuhraya Utara-Selatan (PLUS), a wholly-owned subsidiary of PLUS Expressways Berhad, the major provider of expressway operation services in the country.
Islamic funds, particularly in the equities sector, are set to face some challenges this year but along with adversities, opportunities also abound during this volatile time. Asset management companies are well placed to create further awareness of the benefits of investing in Islamic funds for conventional investors looking for safe havens. — RW