In IFN’s monthly analysis, we bring you a comprehensive review of global Islamic markets. July saw a surprisingly active Sukuk market, a strong showing from Islamic banks as first-half results begin to emerge and sustained performance in emerging markets equities.
It may be summertime but the debt capital market shows little sign of slowing down despite the gloomy figures around issuance volume. The usual short-term instruments came out from sovereign bodies including Bank Negara Malaysia, Bangladesh Bank, the Central Bank of Gambia and the Central Bank of Kuwait – and in Morocco, we finally saw some progress as the Ministry of Finance submitted its maiden sovereign Sukuk project to the Higher Council of Ulemas for approval.
But we also saw an upswell in corporate activity. In Iran, the Road Maintenance and Transportation Organization obtained government approval to issue Sukuk Musharakah amounting to IRR6 trillion (US$135.92 million) and SAIPA Corporation (an Iranian automotive company) floated a four-year Sukuk Ijarah facility worth IRR3.9 trillion (US$88.56 million). In Malaysia, oil and gas firm Uzman proposed an Islamic note program worth up to RM1 billion (US$246.03 million) in Sukuk Wakalah. Kuantan Port Consortium issued two tranches of its Islamic medium-term notes (IMTNs) worth a combined RM225 million (US$55.36 million) and Public Islamic Bank issued a three-year RM520 million (US$128.02 million) IMTN with a 4.3% profit rate.
In the Middle East, activity may have been slightly lower but the pipeline is looking good – Abu Dhabi Islamic Bank announced plans to raise US$750 million through perpetual Tier 1 Sukuk; the Turkish Grain Board is reportedly planning to issue Sukuk worth TRY300 million (US$61.91 million) in the coming month; and Saudi’s Middle East Healthcare Company, which operates a network of hospitals under the Saudi German Hospitals brand, secured a SAR200 million (US$53.29 million) Murabahah financing agreement from Samba Financial Group.
First half results started to emerge in July and the results are looking promising. In the GCC, Islamic banks have made a good showing – Dubai Islamic Bank grew net profits by 14.02% to AED2.44 billion (US$664.19 million) while Abu Dhabi Islamic Bank saw net income for the group rise 3% to AED1.16 billion (US$315.77 million) and Qatar Islamic Bank recorded a 13.8% growth in net profit to QAR1.33 billion (US$365.24 million). In Kuwait, Ahli United Bank grew net profit by 14.8% to US$357.4 million and Kuwait Finance House recorded a 16.6% increase to KWD95.22 million (US$313.3 million), while Boubyan Bank reported a net profit of KWD25.7 million (US$84.45 million) – a growth rate of 18% compared to the previous year.
In Saudi Arabia, Saudi British Bank reported a 14.1% increase in net profit for the January-June 2018 period to SAR2.47 billion (US$658.21 million). Fitch Ratings noted in July that the Saudi Arabian Monetary Authority’s decision to raise the official repo rate from 2% at the end of 2017 to 2.25% in March and 2.5% in June will benefit Islamic banks the most, because the offsetting impact of higher funding costs will be lower for them than for conventional banks as they have a higher proportion of non-profit-bearing deposits. The market continues to see foreign players seek entry – in July, First Abu Dhabi Bank (FAB) confirmed progress in its plans to launch operations in the Kingdom.
Oman is the only GCC country to buck the positive trend – Bank Sohar recorded a loss of OMR157,000 (US$406,953) for its Islamic banking business in the first half of 2018 – the only Omani bank to report its results so far. The sector is also seeing some movement toward consolidation: toward the end of July, Bank Dhofar and National Bank of Oman – both operating Islamic banking window businesses –agreed to proceed with merger negotiations. The Central Bank of Oman also launched a new Islamic liquidity management project, hiring Thomson Reuters to develop new solutions for Shariah compliant liquidity management.
A full circle back to the UAE, Noor Bank launched an Islamic wealth management platform for high-net-worth individuals, targeting customers with a minimum of US$100,000 of assets under management. Under Noor Wealth, Noor Art has also been set up to offer exclusive artworks from renowned local and international artists as investment options.
The Shariah equity markets this month recovered slightly, boosted by the higher oil price and renewed invester confidence. The S&P Global BMI Shariah returned 2.35% over the month, while the S&P 500 Shariah did even better at 3.03% – both keeping pace with their conventional partners.
Asia remained flat amid continued concerns over a US trade war weighing on performance. The S&P Pan Asia Shariah returned 0.77%, while the S&P GIVI Pan Asia Ex Japan Shariah Index (US Dollar) gained just 1.16% over the same period.
By contrast, Africa is looking to be a much better prospect this month – the S&P Pan Africa Shariah Index rose 5.13% (a huge improvement on the -8.84% loss it suffered in June) – although with the S&P Africa Frontier Shariah (which tracks the sub-Saharan region) losing -1.85% over July, it looks as if this growth may have been led primarily by the northern contingent.
The Middle East continued its static streak, with the S&P GCC Composite Shariah returning 1.38% and the Pan Arab Composite Shariah returning 1.27%. Interestingly, the S&P Pan Arab Investable Shariah Index, which is designed for international investors and reflects the float available to non-GCC residents, did far better with a return of 5.31%. This could potentially be due to a lackluster performance from Saudi Arabian equities, which are excluded from the index due to the market’s limited accessibility to foreign investors.
The S&P Emerging BMI Shariah had a pretty boring month, staying flat at 0.71% – in contrast to its conventional counterpart, which rose 2.36%. The Frontier BMI Shariah told a different story however, returning an impressive 4.07% compared to 2.93% for its conventional peer, while the Developed BMI and Developed BMI Shariah gained 2.44% and 2.5% respectively.
The S&P Global Property Shariah barely moved at 0.11% while the Global REIT Shariah lost -0.54%. Global Infrastructure did slightly better with a gain of 3.26% over the month.
Despite the slow summer, the Islamic asset management sector has been surprisingly busy over the past month, with existing funds actively acquiring assets and new players (often in new markets) moving into the space.
In Nigeria, pension fund administrator Sigma Pensions announced plans to boost investment in Shariah compliant private equity – an example of the growing interest in Islamic avenues from investors in the country.
In Iran, asset management firm Mofid plans to launch a new Shariah compliant gold exchange-traded fund, in what will be the fourth such fund for the Republic. In Saudi Arabia, REITs remain the main story, with both SEDCO Capital’s REIT Fund and Derayah REIT further expanding their property portfolios.
In Malaysia, the big news is social responsibility – CIMB-Principal Asset Management Islamic signed the Malaysian Code for Institutional Investors (established in 2014) as part of its commitment toward adopting industry best practices in responsible investing and corporate governance, while July also saw the launch of the country’s first Shariah compliant sustainable and responsible investment (SRI) equity fund under the Securities Commission Malaysia (SC)’s SRI guidelines, created in a collaboration between BIMB Investment, Arabesque and ValueCAP. The fund will invest in about 100 Malaysian Islamic listed companies and will leverage on Arabasque’s S-Ray methodology which will assess the performance of companies on the normative principles of the United Nations Global Compact and their performance. BIMB Investment is also in the process of securing SRI status under the SC’s SRI framework for its existing three environmental, social and governance funds, while a global Sukuk fund is also in the pipeline.