Islamic funds buck global market crisis

Dubai: The spectacular boom in Islamic finance during 2007 contrasted strongly with the global financial crisis induced by the subprime crisis and the strong fundamentals are driving the strong performance of Islamic funds, according to Lipper, an international fund tracking company.

Sharia-compliant funds worldwide registered robust performance during 2007, posting a 26.53 per cent return. Lipper registered 366 funds domiciled in 16 countries at the end of the year.

Malaysia and Saudi Arabia were by far the largest markets for Islamic funds in terms of total assets under management and the number of funds available.

In comparison to the overall average gains of global Islamic funds, the GCC-domiciled funds reported a slightly lower performance of 23.41 per cent return.

The Lipper Islamic Equity Fund Index ended the year with a 43.16 per cent increase, while the Lipper Islamic Money Market Index increased 5.84 per cent. The top-performing Islamic fund registered for sale in the GCC was Amanah GCC Equity, delivering an 82.25 per cent return with a volatility of 21.39 per cent.

According to Lipper, among the GCC Islamic funds, those in Saudi Arabia were the most active within the region, with 85 per cent of the 20 top funds being domiciled in that country.

Commenting on the investment outlook for the region Lipper report said the region enjoys a high degree of political stability, the expansion of these economies into non-oil industries such as tourism and finance will make them more vulnerable to the cyclical nature of the global economy.

Similarly, the GCC countries have been aggressive during the past few years in investing abroad through sovereign funds. It is estimated that over the past six years some $700 billion in capital has been invested by GCC funds in foreign countries.

While this has formed part of the diversification strategy, they are also facing mounting pressure from foreign governments to clarify the objectives of their funds.

Pressure

According to Lipper, although the global economy is marked by uncertainties and lacks visibility with regards to the depth of the liquidity crisis, the GCC region seems to be sheltered from the rest of the world, mainly because of the strong revenue stream from oil production.

However, the report said that there are a number of challenges the region will face in the coming years. The rising inflation and the Gulf countries efforts to address it within the proposed monetary union will be the main among them.

The GCC is aiming for a common currency by 2010. The target deadline, according to the report, is ambitious.