Islamic Investor: Islamic Investor: - Islamic Finance News

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COVER STORY futures market to establish the market price? A price is determined between two parties, a seller and a buyer, but then how could you derive a competitive price and trade it? This is the key issue facing the development of Islamic commodity investments. And this is why we recently launched the DJIM Global Commodity Equity Index, to allow investors to diversify their portfolio with commodities, while respecting the Shariah principles,” he added. If you look at how commodities are priced, you will see that this poses a real problem for Islamic investors Current Market Conditions Unfortunately, current investor sentiment does not bode well for either commodities or equities; with Islamic investors preferring to keep their investments in cash and other short-term and liquid products. However, most industry experts are banking on equities to make a stronger comeback than commodities once the markets regain their confi dence. Bryce Fegley, the president and chief investment offi cer at Saturna Capital in Malaysia, explains: “Many investors, conventional or Islamic, have become interested in commodities exposure in the last decade. Commodities prices followed a long-term trend of declining prices for 100 years until the beginning of this century, as more effi cient exploration and extraction methods offset growing demand and decreasing supply. Now that appears to have changed, and effi ciency gains by producers have not kept up with high demand and supply constraints. “As long as this continues, commodities prices may continue to rise, but probably with a lot of volatility. There are some risks to investing in commodities which include the fact that while high prices encourage the search for alternatives and greater effi ciency; in the aggregate high commodities prices can lead to destruction of demand and recessionary conditions that result in extreme price volatility like we witnessed in 2008 and 2009.” He added: “We prefer equities as long-term investments as they ultimately represent ownership in human creativeness and ingenuity. If people and the companies they run become more effi cient, shareholders should see higher returns at the expense of commodity hoarders. A high allocation to commodities is sort of like a wager that humans will fail to solve the big problems and standards of living will decline due to rising resource prices.” At present, investment options are still limited for Islamic investors, with the main asset classes comprising equities, real estate, Sukuk, short-term instruments (Murabahah), precious metals and cash. “The biggest gap in the Islamic market is on the fi xed income side. While the development of Sukuk has offered new investment opportunities, as we saw with the increasing interest in the DJ Citigroup Sukuk Index, the market remains small and thinly traded. Beyond Sukuk, there is very little in terms of fixed income investments,” Al Rifai revealed. However, he too is bullish on the prospects equity trading has to offer: “Once global markets stabilize, we think investors will return to the equity market, since it offers great long-term investment potential. Equity markets in the Middle East will be particularly attractive to Islamic investors since there are growing investment opportunities in the region and they are more comfortable investing closer to home. As for the commodity side, if a Shariah compliant trading mechanism can be developed to trade commodities effi ciently, we think you will see a lot of interest from Islamic investors.” The need to educate Islamic investors on the investment options available to them is perhaps the most pressing matter at the moment. Empowering investors and allowing them to make clear and educated investment decisions; as opposed to jumping on the equities or commodities bandwagon depending on the current general consensus, will help in properly growing the secondary markets and perpetuating a strong investment culture - no matter what the current trend may be. 6 September 2011
FEATURE Exciting prospects Real estate is as tangible as it gets. So why aren’t Islamic issuers and investors clamoring to invest in REITs? NAZNEEN HALIM looks at the prospects and pitfalls of the Islamic real estate investment trust sector. In November 2005, Malaysia became the fi rst country in the world to release its guidelines for Islamic Real Estate Investment Trusts (REITS). Shortly after, Malaysia saw the establishment of the world’s fi rst Islamic REIT by KPJ Healthcare, which utilized seven hospitals as its main asset class. In February 2007, the country reached another milestone in Islamic REIT fi nancing with the launch of Boustead’s Al Hadharah REIT; the world’s fi rst Islamic plantation REIT. Under the Islamic REITs Guidelines, market players must appoint a Shariah committee or advisor to review, monitor and approve investments by Islamic REITs. Its main criteria include rental of real estate for business purposes, investment, deposit and fi nancing, Takaful schemes and forward sales or purchases of currency for risk management. The purpose of the guidelines is to facilitate the creation of a new asset class for investors and allow fund managers to further diversify their investment sources and portfolios. They also clarify that not more than 20% of rental income can be derived from non-permissible activities. According to Bryce Fegley, the president and chief investment officer at Saturna Capital in Malaysia, Islamic REITs by nature should appeal to Muslim investors. However unlike Malaysia, most jurisdictions have not clearly stated guidelines for such investments, thus creating hesitance among investors. “Property is traditionally an asset class that appeals to Muslim investors and REITs should benefit from that. However, Islamic REITs can be tricky because of different interpretations about whether tenants like conventional banks and supermarkets should be allowed to lease space and under what revenue limits,” he said. Asia leads the way The global REIT industry has grown signifi cantly in the last decade, with the free fl oat market capitalization of listed REITs reaching approximately US$800 billion by the end of 2007 compared to US$300 billion in 1999. This was primarily led by the boom in the real estate sector in European and Asian countries, which experienced a rapid economic boom during the period from 1999 to 2007. Testament to the interest from Islamic investors towards September 2011 7
Page 1 and 2: September 2011 Islamic Investor: Eq
Page 3 and 4: EDITOR’S NOTE Supplements Editor
Page 6 and 7: COVER STORY Equities Vs. Commoditie
Page 10 and 11: FEATURE investments in Islamic REIT
Page 12 and 13: Global industry One publication Est
Page 14 and 15: FEATURE or country-focused ETFs, wh
Page 16 and 17: FEATURE Source: Eurekahedge conduci
Page 18 and 19: CHAPTER Islamic Hedging & Risk Mana
Page 20 and 21: CASE STUDY Executive chairman of AP
Page 23 and 24: STATEMENT Beyond Banking Global Isl
Page 25 and 26: CHAPTER World Islamic Index’s out
Page 27 and 28: RESULTS Crème de la Crèmé The in
Page 29 and 30: RESULTS Best Asset Management Compa
Page 31 and 32: RESULTS Best Real Estate Investment

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