Islamic capital market expected to be busy from June to August


MALAYSIA’S Islamic capital market is starting to see a flurry of activities in the sukuk and equity capital market and is expected to be busy from June to August this year.

CIMB Islamic Bank Bhd senior managing director and deputy chief executive officer Mohamad Safri Shahul Hamid said the capital market has been quite stagnant in the past three months following the movement control order (MCO) in mid-March to contain the spread of the COVID-19 pandemic.

“We are in an unprecedented time and nobody has a crystal ball to predict the future on the depth and length of the Islamic capital destruction brought about by the COVID-19 pandemic.

“There will undoubtedly be a short- to medium-term impact on all segments of the economy including banks, investment banks, asset management companies and insurance companies – basically the entire financial industry and intermediaries,” he said during a webinar on Islamic Capital Market Outlook organised by CERT Events Sdn Bhd on Thursday.

Mohamad Safri said on the back of the public health crisis, the financial industry expects to see lower revenues and profitability this year and the impact would be quite massive to the industry.

“The market has seen an uptick in loan loss provisions in commercial banks and in investment banks, a decline in the number of deals, while the asset management companies have seen withdrawals coming in from unitholders.

“This reflects the possibility of people staying on the sidelines and not wanting to invest money, and that applies to everyone from all walks of life,” he said.

He said banks too will become less “gung ho” in providing financing or lending to new clients, and investors in the sukuk and bond space especially the pension funds would also be less enthusiastic, while the asset management companies would have to make sure that there are enough people out there to buy or invest in their units if they were to set up new funds.

However, he noted that after the relaxation of the MCO on May 9, the market saw a flurry of sukuk issuers into the market especially in the ringgit space and even the global space such as in Dubai and other Gulf Cooperation Council (GCC) countries.

“Based on what we are seeing and hearing, there is going to be a very active June and July going all the way to August. We are now looking at a three-month horizon as our time has become shorter and shorter given uncertainties in the market.

“If you are looking at short term to medium term of three to about four months period, I think we may be quite confident that the sukuk market is going to be okay in Malaysia,” he said.

On another note, he highlighted that attention should also be given to Indonesia in the Islamic finance market space as “the waking giant” where the next growth is going to come from this part of the world.

Although Indonesia was a slow starter, the rupiah sukuk market has been growing by leaps and bounds with 30 to 40 per cent of new issuances coming out from the country, he said.

Meanwhile, he said it is also worth noting the growing activities in the local Islamic equity capital market, with almost 70 per cent of stocks listed on Bursa Malaysia being Shariah-compliant.

The Securities Commission of Malaysia (SC) has fantastic screening guidelines on Shariah compliance equities and the market is now looking at sustainable stock screening and guidelines that the SC is mulling on issuing soon this year, he added.