Islamic Mutual Fund Asset Differences Emerge from Pandemic Fitch Ratings-London/Dubai-27 May 2020: The coronavirus pandemic has had materially different effects on Saudi Arabian and Malaysian Islamic fund assets under management (AUM), says Fitch Ratings.
AUM in Malaysian Islamic funds decreased by around 15% due to the effects of the pandemic. Conversely, AUM in Saudi Arabian funds increased, making Saudi Arabia larger than Malaysia in this respect. Longer-term, however, the growing presence of tax and policy initiatives in Malaysia may lead to incremental growth in AUM in Malaysian Islamic funds.
Fitch considers 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). 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 fund AUM are less sensitive to developments.
The Islamic mutual fund sector is 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.