IslamicFinance.de

According to Dino Kronfol, CIO at Franklin Templeton Investments, the future is bright for investing in sukuk. He is confident that sukuk could provide the stability that mitigates an uncertain global economy, particularly as more risk management tools become increasingly integrated into sukuk products. Governments and financial institutions are the biggest sukuk issuers globally, so their role in terms of pushing for market growth and development will remain vital. Asia has seen the volume of sukuk issuances decline 4% on average over the past five years. Kronfol thinks this trend should reverse as issuances come from new sources and attract more investors. Already, the number of sukuk issuers is expanding: Nigeria, Pakistan, Hong Kong, Turkey and Indonesia have become more significant in recent years. One further possibility could be Chinese issuers looking to diversify their sources of funding.

Malaysia is one of the largest markets for Islamic finance. According to Mohieddine Kronfol, chief investment officer at Franklin Templeton Investments, Malaysia's sukuk market could attract Chinese companies if there were more foreign currency-denominated issues. He said Malaysia has attracted foreign companies to issue sukuk, but they were predominantly in ringgit and largely domestically bought.Mohieddine said there should be more transactions in international currencies like the U.S. dollar, and a currency regime or some central bank support that facilitates that. Franklin Templeton Investments projects global sukuk growth at 15-20% this year on the back of stable oil prices, better growth outlook in markets that issue sukuks and sustained demand for Islamic finance.

The world's second-largest asset manager by market value plans to attract some of the US$376 billion (S$528 billion) parked in Malaysian bank deposits by setting up global Islamic stock and bond funds next year.
Franklin Templeton Investments, which has more than US$801 billion in assets, will seek approval from the regulator to start at least two syariah-compliant funds to serve as offshoots from the three it has in Luxembourg, country head Sandeep Singh said in an interview in the Malaysian capital last week.
That would complement similar investment options available from CIMB- Principal Asset Management and RHB Islamic International Asset Management.
The new funds will widen choices for Malaysians looking to diversify after this year's 17 % plunge in the ringgit and a political scandal hurt confidence. A looming US interest rate increase has already prompted global investors to offload twice as many stocks in the South-east Asian nation as they did for all of last year as well as to cut bond holdings.

A rally in Malaysia’s two-year Islamic bonds lost its key driver after central bank Governor Zeti Akthar Aziz seemed to rule out an interest-rate cut. Malaysia’s borrowing costs are accommodative and the ringgit is undervalued, Zeti said. Maybank Investment Bank said there’s limited room for further declines in short-end yields, after they fell five times faster than those on 10-year notes in 2015. Franklin Templeton Investments Malaysia sees investors switching to longer tenors and forecasts no policy change this year. In the absence of any events that may lead to GDP falling below Bank Negara’s target, a cut in the overnight policy rate is considered unnecessary at this juncture.

Franklin Templeton Investments and ECM Libra Financial Group Bhd say they are favouring Malaysian corporate sukuk, which has outperformed as the Federal Reserve considers ending stimulus. Corporate sukuk benefits from a higher degree of scarcity than for government debt. Sales of Malaysian-currency Islamic bonds fell 63 per cent to RM19.9 billion in 2013 from the year-earlier period, worsening the lack of supply. Company bond offers in the Southeast Asian nation, including sukuk and non-Islamic notes, will total RM70 billion to RM85 billion in 2013. However, corporate bond market issuance is expected to remain relatively strong in the second half as the yield curve will likely steepen beyond 2013. Malaysian corporate sukuk are considered less volatile and they provide some yield pick-up over government bonds.

The world’s third-largest asset-management company - Franklin Templeton Investments is starting its first Islamic funds. Following the steps of companies like BNP Paribas, Templeton will start three sukuk and stock investment vehicles in Luxembourg in the next couple of months. Thus, they aim to win business in the Muslim world.

Middle East bond sales are departing to a record start this year after political unrest that swept through some nations in 2011 decreased and as concern wanished that Europe’s debt crisis would disturb the request for regional debt.
Regional governments and companies raised $10.1bn in bonds in until now in 2012. A $4bn sukuk sale in Saudi Arabia, the biggest Arab economy, conducted a 55% rise in sales from the year-ago period.
Mohieddine Kronfol, Dubai-based chief investment officer for global sukuk and Middle East and North Africa fixed income at Franklin Templeton Investments, noted that they anticipate issuance to increase in the next 12 to 24 months, particularly with banks having to work harder to secure funding and extend credit to the private sector.

Malaysia, the world’s biggest market for Islamic bonds, will issue a license before the end of this year to a new Islamic bank that will be jointly established by institutions from Asia and the Middle East.
The newly formed entity will have a capital of at least $1 billion, Zeti said in an interview late yesterday, without naming the companies or organizations involved. A second so- called “mega Islamic bank” permit may be issued by the central bank next year.
Muslim-majority Malaysia began pioneering Shariah-compliant finance with its first Islamic bank three decades ago. It is today responsible for more than 60 percent of the world’s $130 billion outstanding Islamic bonds, or sukuk, that comply with the religion’s ban on interest, according to data compiled by Bloomberg. The new bank will be able to facilitate larger issuance of such notes.
The country has offered tax breaks and other incentives to attract global financial institutions including Aberdeen Asset Management Plc and Franklin Templeton Investments in a bid to cement its role as the global Islamic financial hub of Asia.

Islamic banking in Malaysia, the world’s biggest market for sukuk, rose 21 percent in the first seven months of 2010 from a year earlier, and accounted for 20 percent of the total, the government said in a report.
The Southeast Asian nation, where about 60 percent of the 27 million population are Muslim, lowered foreign-ownership limits in financial institutions in 2009 to attract more international investors. The central bank has issued Islamic licenses over the past year to global funds that include Aberdeen Asset Management Plc and Franklin Templeton Investments.