Experts: Islamic ETF Good For Malaysia's Economy

By Tengku Noor Shamsiah

PUTRAJAYA-The introduction of an Islamic Exchange Traded Fund (ETF) will be good for the economy, boosting the country's capital markets and attracting more foreign investments, economists and industry experts say.

Saying that the move comes "at no better time" when interest in Islamic investments is at a record high, the ETF will attract Middle Eastern investors on the lookout for syariah-compliant alternative investments.

Economists noted that Middle Eastern investors are looking at non-traditional markets, describing Malaysia as a top destination due to its vigorous efforts in promoting the country as an Islamic financial hub.

Overall, industry observers said, the newly-launched MyETF Dow Jones Islamic Market Malaysia Titans 25 (MyETF-DJIM25) will help push the country into a "new era" where the depth and breath of investments will be more sophisticated with a much wider choice of investments.

i-VCAP Management Sdn Bhd, a wholly-owned subsidiary of fund management firm ValueCAP Sdn Bhd, had on Jan 21 launched the MyETF-DJIM25, a national ETF which is also Asia's first Islamic ETF.

The syariah-compliant fund has an authorised fund size of 10 billion units and an initial size of 840 million units. It also has the participation of government-linked investment companies (GLICs).

The launch of MyETF-DJIM25 by i-VCAP enables investors to gain immediate exposure to the top 25 listed companies on Bursa Malaysia.

"There is a shortage of good Islamic investments and with the rising demand for such products, this Islamic ETF by i-VCAP is definitely good news for investors. Couple this with the sharp rise in oil revenues, and the opportunities for the ETF are very bright," RAM Holdings Bhd's chief economist Dr Yeah Kim Leng told Bernama.

According to him, the Islamic ETF is well-timed to take advantage of a global surplus of funds, with foreign investors looking to invest in the Islamic ETF as a means to diversify their investment portfolios.

"Given the financial volatility in developed markets partly due to the sub prime problem and credit crunch, investors are looking for diversification possibilities in growing economies like Malaysia," he said.

"With the conducive environment and excess global financial liquidity, there is still a huge amount of funds out there, both private and sovereign, that are looking for places to invest. One good place is this Islamic ETF."

Meor Amri Meor Ayob, chief operating officer of Bondweb Malaysia Sdn Bhd, the country's first bond pricing agency by the Securities Commission, welcomes the Islamic ETF as well, adding that it will provide investors with an attractive alternative investment.

"The introduction of MyETF-DJIM25 gives more depth to the capital markets in providing more products while, in terms of breadth, it also gives investors more choices in an asset class apart from stocks.

"In future, the government could also look at introducing more derivatives products to further broaden and deepen the capital markets. It could also do more ETFs in the future ... the more the merrier," said Meor Amri.

Meanwhile, an economist at a rating house believes the Islamic ETF will be able to attract significant interest, judging from the robust demand for Islamic products. He said it will be a useful tool for the economy to help in mopping up the current excess financial liquidity in the market.

"It will also be good in helping people to mobilise their savings for better returns. It will also be good in attracting petro dollars to the country," added the economist.

MIDF Amanah Investment Bank's equity economist Imran Nurginias said the expected investments in the Islamic ETF will be useful to help cushion any fall in investments due to the global credit crunch.

MyETF-DJIM25 received overwhelming response from retail and institutional investors, with the public spread being oversubscribed by 31.5 million units in just its second day of subscription.

In view of this, the GLICs participating in it are paring down their stakes by a further 80 million units to allow greater subscription by the public.

The seven GLICs were initially set to subscribe up to 700 million units of MyETF-DJIM25, while the balance of 140 million was to be made available for the public.

The subscription period ended yesterday and the fund is to be listed on the Main Board of Bursa Malaysia on Jan 31.

Among the stocks within the index are Sime Darby Bhd, IOI Corporation Bhd, DiGi.Com Bhd, Kuala Lumpur Kepong Bhd, MISC Bhd, Gamuda Bhd and PPB Group Bhd.