BUSINESS
Gulf Times Sunday, July 15, 2012
30
Millionaires get Shariah assets
as banks expand
Islamic private banking has been slow to take off due to the challenge of creating enough investments that comply with Shariah law
Bloomberg Kuala Lumpur
S
tandard Chartered will start Is- lamic private-banking services in Asia and CIMB Group Hold- ings Bhd plans to roll out new prod- ucts for the wealthy as they target rich Muslims who have limited investment options.The UK’s second-largest lender by market value will off er Shariah- compliant products tailored to meet the needs of people who have at least
$2mn, Wasim Saifi , the Kuala Lumpur- based global head for Islamic con- sumer banking, said in an interview last week. Malaysia’s CIMB will market more instruments in the fourth quar- ter for clients with a minimum of 1mn ringgit ($314,000), Badlisyah Abdul Ghani, chief executive offi cer of CIMB Islamic Bank Bhd, said in an interview on Tuesday.
CIMB says Islamic private bank- ing has been slow to take off due to the challenge of creating enough invest- ments that comply with Shariah law, while Standard Chartered estimates that seven out of eight Muslims glo- bally bank according to non-Islamic principles. The number of individuals in Asia Pacifi c with at least $1mn in in- vestable assets reached 3.4mn last year, topping the number in North America, according to a report released in June
by Capgemini SA and RBC Wealth Management.
“There are huge prospects for Islam- ic private banking,” Abas A Jalil, CEO of Kuala Lumpur-based consultancy Amanah Capital Group, said in inter- view last Monday. “There are many in- vestors in Asia whose businesses have been doing well in the Middle East, Eu- rope and America and they are looking at investing.”
Falling yields on Islamic bonds are cutting options for banks looking to boost returns for their wealthy Muslim clients. Global yields dropped six basis points this month to 3.38%, the low- est level since January 2005, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The securities off ered average rates as high as 4.49% in 2010 and 6% in 2007.
Standard Chartered plans to intro- duce Shariah-compliant structured products among its private-banking options, according to Saifi . Such in-
vestments are classed as higher-risk, often involve hedging, and are typically tied to movements of underlying assets including equities. The lender, which earns most of its profi t in Asia, will also off er mutual funds, he said. Private banking ranges from property invest- ments to retirement planning.
“The wealthier the customer is his requirements tend to be far more so- phisticated when it comes to risk- management, diversifi cation and yield-enhancement,” Saifi said. “To- day, you can’t really say that an Islamic high net-worth individual would have the same options on the Shariah side as he would have on the conventional side.”
Interest in fi nancial products for wealthy Muslims will rise as economic growth in Asian nations outpaces the rest of the world, driving up incomes, according to CIMB.
The International Monetary Fund estimates economies in developing Asian countries will expand 7.3% this year and 7.9% in 2013, according to its World Economic Outlook Update is- sued in April. That compares with 2.1%
and 2.4% in the US, respectively. The Middle East and North African regions will grow 4.2% and 3.7%, the Washing- ton-based lender said.
Standard Chartered has started of- fering Islamic private- banking prod- ucts in Malaysia, Indonesia, Brunei, India and Pakistan through its offi ces in Singapore and Hong Kong, Saifi said. The bank announced on June 25 that Shariah-compliant wealth-man- agement services would also begin in Dubai, London, Geneva and Jersey, ac- cording to a statement.
Weekly Treasury Update
DOLLAR
The key US employment data was again weaker than expected which will hamper confidence in the US outlook.
The Federal Reserve has edged slightly closer to further quantitative easing and speculation over further activity will curb dollar demand. There will, however, still be expectations that the US economy will out-perform the eurozone area in the short-term. Global factors will also be very important and a general lack of confidence in the outlook, allied with delever- aging within the banking sector, will still lead to defensive dollar support. In this environment, the US currency should be able to resist substantial selling pressure with volatility set to increase.
The dollar maintained a firm tone during the week despite the disappointing payroll data seen at the end of last week and it advanced to test two-year highs on a trade-weighted basis as the Euro came under pressure. International consid- erations remained important as global risk conditions were very fragile with a further flow into US Treasuries.
Minutes from the Federal Reserve meeting in June confirmed that there had been a wide-ranging debate and significant divisions within the FOMC (Federal Open Market Committee). A few members continued to promote the case for further easing at this time. The majority were more concerned over the threat of a slowdown and also stated that further easing might have to be considered, but did not want to take immediate action. There were also calls for a discus- sion on new methods to support the economy which suggests that there are important reservations over a further round of quantitative easing.
US jobless claims fell to 350,000 in the latest reporting week which was the lowest since the first quarter of 2008.
Although the dollar failed to derive much immediate benefit from the data, there was further speculation that the US economy would out-perform Europe in the short-term.
EURO
The eurozone leaders have made some progress in tackling the sovereign debt and banking crisis. There are, however, still major economic and political barriers, especially as it will be extremely diff icult to move towards any form of banking union. Prolonged delays in ESM (European Stability Mecha- nism) implementation would also be damaging for confi- dence. Economic weakness will also be a key diff iculty with expectations that austerity measures within Spain will deepen recession conditions further and increase political protests.
The European Central Bank will have to maintain an extremely loose monetary policy which will tend to keep the euro gener- ally on the defensive over the next few months.
The euro was subjected to further selling pressure during the week as structural fears continued with a slide to fresh two-year lows below 1.22 against the dollar.
The Eurogroup signed a political understanding with Spain and €30bn made available immediately to underpin the banks. There was also a pledge that Spain would be given an extra year to 2014 to cut the budget deficit to 3.0% of GDP.
There were, however, still major uncertainties over policy de- tails and the EU admitted that ESM stakes could not be taken before a Euro-zone banking Supervisor was in place.
The German Constitutional Court held a hearing over the cases brought demanding an injunction to stop the ESM be- ing ratified. In its opening statement, the court stated that it would respect the decision of parliament, but the indications later in the day were that a decision could take weeks.
Spain announced a further €65bn package of measures to curb the budget deficit and attempt to cut the deficit to the target 3% target level by 2014. The headline measure was an increase in VAT to 21% from 18%. There was a series of cuts to tax reliefs, although it was off set to some extent by a cut in income tax rates.
There was a series of labour-market protests to coincide with the fresh austerity measures and Prime Minster Mariano Rajoy was forced to admit that it was a measure of last resort.
There was a decline in Spanish bond yields following the an- nouncement, but there were also major concerns that fresh austerity measures would drag the economy deeper into recession.
There was a sharp decline in deposits held at the ECB according to the latest data as the new maintenance period started. In this context, the central bank decision last week to cut the deposit rate to zero had an important impact with pressure to reallocate funds elsewhere. The euro was still sub- jected to further selling pressure with increased speculation that the euro would be used as a funding currency.
There were further warnings over Spanish regional budget deficits. Moody’s also downgraded the Italian credit rating to Baa2 which is only two notches above junk. There was further evidence of flows into defensive instruments such as AAA-rated bonds. The yield on Dutch 2-year bonds moved into negative territory, matching the trend in German and Swiss bonds.
Range for previous week: $1.2160-$1.2333 Range for this week: $1.2100-$1.2350
STERLING
There will be further concerns surrounding the UK growth prospects, especially with fears over the impact of weak demand within the eurozone. The UK currency has again been broadly resilient in the face of quantitative easing, but there will still be a high degree of unease surrounding longer-term implications with Sterling weakness a key feature of longer- term eff orts to ease debt burdens. Safe-haven considerations will remain important and there will be scope for further inflows into sterling if eurozone fears cannot be eased.
Nevertheless, the sterling environment could be increas-
ingly unfavourable on domestic fears. Sterling was unable to make significant headway against the dollar and dipped to one-month lows below 1.54. In contrast, sterling pushed to levels beyond 0.79 against the euro, the strongest level since late 2008.
The latest monthly industrial output data was stronger than expected with a 1% monthly gain which provided some relief, especially as the trade data was also stronger than expected as exports strengthened.
The NIESR (National Institute of Economic and Social Research), however, indicated that GDP dropped 0.2% for the second quarter and Bank of England governor Mervyn King maintained an extremely cautious outlook as he warned over the UK implications of sustained eurozone weakness.
UK benchmark yields fell to fresh record lows at the latest Gilt auction with a yield below 1.75% which reinforced specula- tion that there were defensive flows into UK bonds as capital continued to retreat from peripheral markets.
Range for previous week: $1.5390-$1.5580 Range for this week: $1.5450-$1.5670
YEN
The Bank of Japan has resisted expanding monetary policy further at the latest policy meeting. With central banks expanding policy elsewhere, the net conditions have moved in favour of the yen. Although the Bank of Japan will maintain a very loose policy, there will be reduced potential for selling pressure on the yen. The Japanese currency will also gain important defensive demand at times given the deteriora- tion in risk appetite and bond redemptions will also underpin the yen. There will still be a lack of confidence surrounding the domestic fundamentals and expectations of longer-term depreciation.
The dollar was unable to sustain any headway during the week with resistance close to the 80 level while the yen held a firm tone on the crosses as the Euro retreated to lows below 96.50.
At its latest policy meeting, the Bank of Japan increased its asset-purchase programme to ¥45trn was ¥40trn previously, but also cut the loan programme by ¥5trn so the net quantita- tive easing programme was left on hold.
With the ECB taking action to cut the deposit rate to zero and speculation that there could be additional Federal Reserve measures to boost quantitative easing, there was a shift in relative yield considerations in favour of the yen even though the BoJ interest rates near zero. There was the poten- tial for relative yen out-performance, especially with the Swiss National Bank also blocking currency gains.
Range for previous week: ¥79.07-¥79.94 Range for this week: ¥79-¥80.30
The Eurogroup has signed an understanding with Spain and €30bn made available immediately to underpin the banks. Spain would also be given an extra year to 2014 to cut the budget defi cit to 3% of GDP
StanChart will off er Shariah-compliant products tailored to meet the needs of people who have at least $2mn, according to Wasim Saifi, the Kuala Lumpur-based global head for Islamic consumer banking.