Despite the rapid growth and positive prospects for the Islamic finance industry, concerns still exist over the impact of financial easing measures and the ability of some emerging markets to maintain performance over the coming year. According to Ernst & Young (EY)’s World Islamic Banking Competitiveness Report 2013, global Islamic banking assets are expected to cross the US$1.8 trillion mark in 2013 up from US$1.3 trillion in 2011.
In terms of asset management, growth has been slower than expected and diversification is vital to ensure continued momentum. According to market sources, managers should be looking once more towards developed markets and focusing on international investment. Speaking exclusively to Islamic Finance news Mark Watts, the head and ceo of National Bank of Abu Dhabi’s asset management group, said: “Today, the transition to the removal of unconventional monetary easing is likely to cause emerging markets some concern in the coming quarters. So investing in developed markets first and adding emerging markets later makes sense.”
Based on the EY report, Saudi Arabia ranked first as the largest global market for Islamic banking assets, commanding approximately US$207 billion. This is followed by Malaysia with total assets of US$106 billion, and the UAE with total assets of US$75 billion. Ostensibly, emerging markets that do not require capital flows are most likely to perform better. Watts added: “The MENA region has a macro picture to die for. Hence any pull-back should be treated as a buying opportunity.”
When it comes to expanding a portfolio, equal diversification is always a vital factor to consider. Capital markets in countries where Islamic finance is prevalent are frequently relatively young compared to the more developed conventional economies. This can convey the perception of a strong bias towards domestic investments, thus making international diversification a secondary avenue in terms of varying asset class. Watts noted that overseas investments should be selected based on the long-term macro strengths of an economy, and finessed by short-term market timing factors.
Commenting on the outlook of the global Islamic asset management industry, he concluded that: “Recent announcements by the Dubai government throwing its weight behind the Islamic finance industry will bear fruit in the years to come, if the announcements are followed by concrete plans. The industry will continue to grow and slowly take market share, though I cannot see any breakthrough on the horizon that will substantially accelerate the pace.” –
NA