Inve$t | Market Sentiments | 11 August 2023
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Bursa Malaysia Bhd chairman Tan Sri Abdul Wahid Omar is urging local financial institutions to list their Islamic banking subsidiaries on its exchange to add more shariah-compliant equity instruments to the market as there is a shortage in the financial services sector.
He said that well-known local banks are categorised as conventional, despite a big portion of the businesses are now shariah compliant. Citing Maybank, CIMB, Public Bank and RHB Bank as examples, he said they remain categorised as conventional despite a portion of their business being shariah-compliant.
He was speaking at the Invest Shariah Conference 2023 organised by CGS-CIMB Securities Sdn Bhd when he told reporters that he would like to encourage these banks to list their Islamic banking subsidiary with a view to have more shariah-compliant equity instruments in the financial services sector.
He also noted that many of the banks operate on a leverage model, whereby their Islamic banking business is leveraging on their branch network, which includes their management team. Moreover, when a bank lists separately, it has to consider its minority shareholders and may encounter issues of related party transactions.
“That’s why we have to start thinking about the possibility of other instruments, which will enable a portion of the equities to be traded on the shariah-compliant side and that’s something that we have to talk about”, he said. There is a need to think about designating some of the shares as shariah-compliant shares by ringfencing and earmarking income from the Islamic banking operations as a source for payment of the dividends,” he added.
In terms of outlook, the general Islamic market is expected to be more positive in 2H2023 as global interest rates reach their peak during the period and the reversal of investment flows away from developed markets into emerging markets happens. That will mean that there will be more investments coming to the emerging markets, not just in Malaysia but also other ASEAN countries, such as Thailand and Indonesia. That will help support the market and when they come into the market, it will bolster not just the shariah-compliant equities but also the broader market.
Still space to improve range and depth of Shariah-compliant financial instruments to meet investors’ demand – Bursa Investor Development Head
According to Bursa’s Investor Development head Stephanie Tan, there is still space to improve the range and depth of shariah-compliant financial instruments to meet investors’ demand. In order to meet the demands of the evolving market landscape, the need for modernisation becomes apparent as emerging asset classes, financial instruments and investment strategies present opportunities to thrive in this evolving environment.
Embracing a broader array of financial instruments – such as sukuk, Islamic ETFs and Islamic REITs – expands our access to diversified investment opportunities, enhances liquidity and accommodates varying risk profiles adding that 81.9% of the total market cap on Bursa is shariah-compliant as of June 2023. At the same time, the total market cap for the five Islamic REITs made up 43% of the 19 REITs listed on the exchange while there are six i-ETFs, making up 18.9% of the NAV of the 20 Exchange Traded Funds listed on Bursa.
The future for shariah investments appears exceedingly promising, due to the emergence and significance of shariah-compliant technological solutions.
