Steady stream of investment from GCC

MALAYSIA is expected to continue attracting investors from the Gulf Cooperation Council (GCC) countries in the long term, according to SHAPE Financial Corp president and chief executive officer Abdulkader S. Thomas.

“Generally, there is a comfort level with Malaysia as a destination. People (Gulf investors) are hearing the right things from those who have been to Malaysia,” he told StarBiz.

“Broadly speaking, it is an attractive market and it will continue to be attractive to Gulf investors. This is not expected to change anytime soon.”

Kuwait-based Abdulkader cited Kuwait Finance House, Al-Rajhi Bank and Asian Finance Bank as examples of positive stories of “institutional transplant” from GCC countries, which consist of Saudi Arabia, Bahrain, Qatar, Kuwait, Oman and the United Arab Emirates, into Malaysia.

The country's robust Islamic capital markets (ICM) also serve as an attraction to Gulf investors as the markets in the GCC tend to be fragmented with a lack of integrated regulations and integrated understanding of syariah.

“If we go down the list of Gulf states, there has been a reluctance to embrace the Islamic markets as something that they need to have a proper plan for in terms of regulations, credentials and governance.

“Gulf regulators have realised that this is the largest growing financial sector under their regulation and they are looking for answers,” Abdulkader said.

He noted that the degree of fragmentation in the GCC market also meant that the GCC was reliant on at least one international/global bank being a participant of their distribution and underwriting syndicate.

“These banks are in trouble right now, under pressure from regulators to do less business, while some are capital impaired in a significant way.

“This will cause more Gulf issuers to look at underwriting, issuing and distributing with the help of Malaysian institutions. It is a huge opportunity right now,” he said.

Abdulkader – a consultant to the US and international financial community in matters relating to syariah compliant financial structuring – added that the types of errors made in the US subprime crisis was also causing many people to re-examine the Islamic proposition to see if it was a better option and this would help to drive some of the growth opportunities in the area.

Securities Commission project director (ICM Development Project) Wan Abdul Rahim Kamil Wan Mohamed Ali noted that an area to focus on was non-ringgit structures.

“We have a swap market where the ringgit is becoming more acceptable today and there is the availability of swap arrangements that do not make ringgit instruments inferior to non-ringgit ones.

“I believe there will be more funds coming in from the GCC along this angle,” he said.

In addition, Malaysia's integrated ICM, guided by a national syariah board, Securities Commission and Bank Negara, is conducive for product development.

“Things are actually invented in Malaysia and adopted in the Gulf,” Abdulkader said, adding that GCC countries were also employing the country's Islamic finance expertise.

Gulf investors are said to favour real estate, takaful, pension funds, exchange traded funds, Islamic real estate investment trusts, sukuks and hedge funds, among other things.

“It depends on the sophistication of the investors, but products should be developed according to the needs and wants of the market,” Abdulkader said.

For example, he sees securitised micro finance becoming an issue for some parts of Asia due to the large groups of people who are excluded from credit and the lack of an efficient means to refinance the funding.

“That will be an area that will be explored in the Islamic and conventional space,” he said.

On competition, Abdulkader said it was difficult to overtake Malaysia, which has educational resources, a large base of experienced people and a well-developed regulatory scheme.

“It has an installed knowledge base that is difficult to overcome in a short time.

“I think other sectors/markets are likely to be complementary or sector-oriented as opposed to comprehensively competitive.

“We are so small in the business that all everyone can do is grow the business for everyone else right now,” he said.

However, Abdulkader stressed that to remain competitive, Malaysia needed to continue to educate its human resources.

Wan Abdul Rahim noted that Malaysia had “come a long way” and established a framework to cater for all the needs in the ICM.

“The Capital Sector Masterplan will end soon and we have fulfilled all the conditions. We are looking at what else needs to be done.

“I think we are heading towards the direction of western markets which are more market driven rather than regulatory,” he said.