Malaysian Islamic funds' assets drop 15pct, fund mix more balanced than Saudi's

Assets under management (AUM) of Malaysian Islamic funds have decreased 15 per cent due to the effects of the Covid-19 pandemic, according to Fitch Ratings.

The rating agency said AUM of Saudi Arabian funds had increased, making the kingdom larger than Malaysia in this respect.

It said the coronavirus pandemic had had materially different effects on Saudi Arabian and Malaysian Islamic funds' AUM.

Fitch Ratings said the growing presence of tax and policy initiatives in Malaysia over a longer-term may lead to incremental growth in AUM of Malaysian Islamic funds.

"We consider Saudi Arabia to be more vulnerable to future Islamic fund AUM declines than Malaysia, particularly in the event of a sustained market recovery leading to outflows from money market funds (MMFs)," it said in a statement today.

It said Korean MMFs had strong inflows at the beginning of the pandemic, followed by sharp outflows as lockdowns lessened.

"If Saudi Arabia follows the same trend, aggregate Islamic fund AUM overall could decline, as MMFs dominate the Islamic fund mix in Saudi Arabia.

"In contrast, Malaysia's Islamic fund mix is more balanced, and therefore aggregate Islamic funds' AUM are less sensitive to developments," it added.

Fitch Ratings said the Islamic mutual fund sector was considerably more concentrated in Saudi Arabia than in Malaysia.

"The Saudi Arabian Islamic fund segment is largely concentrated on MMFs, and has fewer Islamic funds than Malaysia's, and so idiosyncratic issues in larger Islamic funds in Saudi Arabia may have disproportionate overall market effects," it added.