All Graphs Going Up?


Recent research published by Moody’s Investors Service makes for encouraging reading for any Islamic asset manager, but what are the consequences of all this positivity?

Moody’s surveyed the chief investment officers of leading asset managers in the GCC, asking for their expectations over the next 12 months.

Even after discounting for some talking-up of their markets, the projections look rosy.

Half of the respondents expected both double-digit growth in net inflows of capital, and that Islamic products would grow more rapidly than sales of conventional investments. Such expansion is not unexpected after experiencing such double-digit growth in 2020 despite the double impact of a pandemic-induced economic downturn and accompanying fall in oil prices, but what is behind their predictions for Islamic product outperformance?

The respondents identified the world’s 1.8 billion Muslim population as a key driving force behind this growth, particularly if their access to suitable investment products could be enhanced.

Noting that there is a growing diversification of Islamic product offerings and increased socially conscious investing, those surveyed felt that there was still a lack of Islamic asset management specialists, with Moody’s concluding that: “Asset managers involved in the development of new Islamic products and investment solutions are likely to benefit significantly.”

While the report did not differentiate by asset class, from the level of enquiries received by our own 90 North since the kids went back to school, I think it is fairly safe to say that demand for Islamic real estate would at least be keeping up with the other investment sectors.

Such inflated Islamic interest comes at a time when global investors are concerning themselves with global price inflation as the world gets up to speed again.

With research from BlackRock confirming the long-suspected belief that real assets are good in an inflationary environment, more specifically that total returns on privately held property and infrastructure assets beat main stock and bond indices when inflation exceeds 2.5%, the hunt is on for bricks and mortar.

Which leads me to return to my economic studies from all those years ago, and the very basic demand versus supply analysis, supported by what we have already been witnessing over the last six months. The demand for real estate is increasing greater than its supply, and a graph that is already falling is investment yields. I do not see that direction changing anytime soon.

Written by Philip Churchill, first published in Islamic Finance news Volume 18, Issue 41 dated 13th October 2021