Emergence of other Islamic hubs a boon

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Instead of being competitive threats, the emergence of other global Islamic financial hubs serves as a complementary factor for the continued growth of Islamic finance in Malaysia, says Principal Islamic Asset Management chief investment officer Mohd Fadzil Mohamed.

With other Islamic financial centres such Dubai in the United Arab Emirates (UAE) and even London appearing on the horizon in the past 15 years or so, Fadzil believes this actually offers Malaysian Islamic financial services providers such as Principal a gateway to move into those respective markets.

In an interview with StarBiz, he said: “For example, the setting up of Dubai (as an Islamic financial hub) renders the oil-rich Middle East region more accessible to us.

“As such, Principal actually has a firm footing in the UAE with a 10-year track record, and we are collaborating well with the financial institutions over there.”

Having said that, however, Fadzil acknowledged that Malaysia is far ahead of other Islamic financial centres in the world in terms of market size and expertise, as the Malaysian Islamic financial sector has benefitted from supportive long-standing government initiatives, beginning with the enactment of the regulatory Islamic Banking Act in 1983.

Having close to US$30bil (RM142bil) in assets under management (AUM) in South-East Asia alone, he pointed out that Principal is one of the largest asset managers in the region.

He reiterated the company’s aim to continue finding ways to cater to the needs and appetites of its customes, underlined by the launches of funds across several asset classes such as the Islamic Global Technology Fund, Islamic Global Multi-Asset Fund and the Islamic Asia-Pacific Dynamic Equity Fund in recent years.

“We are also doing our best to adhere to environmental, social and governance principles, which is one of the underlying principles of our Islamic Global Responsible Equity Fund,” he added.

Meanwhile, in response to the US Federal Reserve maintaining its hawkish monetary tightening stance going into 2023, Fadzil said Principal is looking at diversifying its portfolio into real estate as an alternative defensive strategy, as he opined that rate hikes would be beneficial to the real estate market.

Further seeing light at the end of the tunnel, Fadzil projected that with the squeeze that the rise in interest rates is having on the US economy, there is a possibility the Fed would stop its inflation-combating tightening strategy by the end of next year, which would make the equity markets attractive again.

Therefore, he advocated for investors to “stay invested”.

Responding to how Malaysia would fare should Bank Negara, in accordance with the Fed’s move, continue with the rates hike, Fadzil opines that Malaysia is well insulated from a serious recession.

“China’s adamance to its zero-Covid policy, which is causing global supply disruptions because of its persistent lockdowns, is giving many manufacturers the opportunity to relocate their factories to South-East Asia, including to Malaysia, and this is positive for our economy,” he added.

Delving deeper into the subject of the recent lockdowns and their effects, perhaps surprisingly in a pleasant way, Fadzil said the lockdowns have in some ways triggered an interest in Islamic financial products, as the principles of “maisir” and “gharar” means investors see Islamic products as an option that reduces speculative risks.

“Overall, Islamic finance is still young compared to conventional finance, and Principal is continuing to look for ways to ‘scale up’.

“We do our best to give options to our investors both in good and bad times, which is what our Global Multi-Asset Income Fund can offer, as well as our aforementioned plans to move into real estate investing,” he said.

Recognising there are differences in interpretations of certain syariah laws and rules in different countries, Fadzil said these differences stem from influences of respective local customs, as well legal opinions (fatwas) of Islamic scholars, and see no real need to standardise or converge the understanding of these rules throughout the Islamic finance world.

“The core pillars of Islamic finance come from Islam itself, which is based on the Quran and the Hadith. This is consistent throughout the whole Islamic finance world, such as the prohibition of “riba”, “maisir” and “gharar”.

“The flexibility on more minor syariah matters actually gives different countries the chance to develop their own Islamic financial industries according to their respective market demands,” he said, adding that there is no need to rock the boat as Islamic finance is growing at a steady pace presently.—The Star

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