12.06.2012

Ken Goh

Portfolio Manager

CIMB Principal Asset Management Pte. Ltd. Singapore

 

Boasting attractive fundamentals for investors such as more than a third of the world’s population, rapid urbanisation and growing demand, the Asia Pacific region offers fertile ground for anyone taking a long-term view of their investments. The WSF Asian Pacific Shariah Growth Fund gives investors the opportunity to take advantage of healthy growth across the Asia Pacific region while complying with Shariah investment criteria.

 

GROWING MARKET

Shariah-compliant funds - which are prohibited from investing in industries considered speculative or unjust – have become popular with more and more investors as the global Islamic finance industry has grown. According to estimates from those within what is today a USD1tn industry, growth in global Islamic finance has been at a pace of 15-20% per year and is expected to stay at those levels for the next decade. But while Shariah-compliant funds follow the principles of Islam, their growing popularity is not limited just to Muslims. In Malaysia, for example, it is estimated that more than three quarters of Shariah-compliant investment products are held by non-Muslims, while investment centres in other parts of the world are also actively looking to attract investors in Shariah-compliant products. The growing appeal of Shariah products to non-Muslims is, investment managers say, rooted in the fact that they are seen as ethical investment products similar to those promoting clean energy and protecting the global environment and, following the financial crisis in 2008, as offering a potentially less risky and financially more responsible alternative to more conventional financial solutions.

 

INVESTMENT POTENTIAL

The investment potential of the Asian Pacific region’s markets is underlined by their growth fundamentals. The region’s on-going structural transformation, increasing productivity and favourable policy climate will continue to support healthy growth in the long-run. Among its other impressive key structural fundamentals are:

 

  • China, India and Indonesia alone have 35% of the world’s population - more than 2.8bn inhabitants – providing a catalyst for a strong future economy.
  • Urbanisation is accelerating and with it economic growth driven by the sheer number of people with increased spending power. This rapid urbanisation will also drive greater infrastructure spending in coming years, fuel growing demands for energy, and lead to a rise in employment and higher standards of living.
  • China and India are commodity consumer powerhouses while Indonesia and Australia are among the world’s largest commodity providers.
  • Regional economies are rebalancing in light of the recent global slump as they look to be less reliant on exports to drive their economies:  Rising income in Asian Pacific countries means consumers have more resources and a higher propensity to spend.  For instance, Chinese GDP grew at about 10% in 2011 while the contribution from net exports (export less import) to GDP growth was negligible. A large part of the growth was driven by a double digit increase in consumer spending.

 

LOCAL ADVANTAGE

The Fund also benefits from a comprehensive stock selection and portfolio management process which takes advantage of expert local knowledge. The Fund’s investment manager, CIMB-Principal, has a large foot-print in Asia with portfolio managers and analysts on the ground in many of the countries in the region. These specialists have extensive local knowledge that helps identify early changes in fundamentals and trends ahead of competitors and enhance the Fund’s performance. The manager’s investment approach is primarily bottom up.  Nonetheless, economic indicators, fundamentals and political trends in each country are studied and evaluated to determine the relative attractiveness of each country on a monthly basis.

 

OUTLOOK

Market volatility is expected to increase. There are conflicting forces that will push equity markets higher as well as drag them lower. The US economy appears to be on the mend and should provide a tail wind for Asian equity markets. Unfortunately, a better US economy also means the Federal Reserve will take the pedal off the liquidity accelerator. With regards to the Eurozone, more countries are likely to need extra funding from the EU/European Central Bank (ECB), as many of them are unlikely to meet fiscal targets. The likelihood of a hard landing in China is small, but it is also unlikely that there will be double digit growth in the country anytime soon. In this uncertain environment, the fund manager plans to position the portfolio mainly in growth and quality stocks, rather than cyclical names with a continuing focus on stock picking to outperform the market as stocks with better/improving fundamentals are likely to lead the market. Companies with healthy cash flows/dividend yield, strong business franchises and good corporate governance will be preferred while it is expected that countries with better earnings revision/outlook will continue to outperform.

 

INVESTMENT MANAGER

The Fund is managed by award-winning Asian investment specialist CIMB-Principal Asset Management, part of CIMB Group, South East Asia’s fourth largest banking group. It has more than USD9.1bn of assets under management (as of 31.12 2011) and a regionally-integrated team of scores of investment professionals across the region using their local knowledge and presence to ensure clients get the best possible service. Among its key strengths and competitive advantages are a strong Shariah portfolio management skill set and its regional expertise.

 

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