Friday 19 Jul 2024
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In January of 2017, the Securities Commission Malaysia (SC) announced the launch of a five-year Islamic Fund and Wealth Management Blueprint to further strengthen the country's position as a global hub for Islamic funds by 2021 and further drive the development and growth of Malaysia's Islamic capital market. The first of its kind globally, the plan was aimed at developing the country as an international provider of Islamic wealth management services. The blueprint comprises three key strategic thrusts - strengthen Malaysia's position as a global hub for Islamic funds, establish the country as a regional centre for shariah-compliant sustainable and responsible investment, and develop it as an international provider of Islamic wealth management services.

The recommendations, among others, were to provide enabling frameworks to support innovation in Islamic markets, enhance market access and international connectivity, promote the growth of private equity, and spur institutional participation in Islamic funds. It also includes facilitating new digital business models, products and services for Islamic fund and wealth management, developing facilitative market infrastructure for Islamic wealth management, and fortifying the talent pipeline for Islamic wealth management.

Strategically, Value Partners Asset Management Malaysia Sdn. Bhd. (Value Partners Malaysia), a wholly-owned subsidiary of Value Partners Group Limited (the first asset management firm listed on the Main Board of the Hong Kong Stock Exchange, stock code: 806), was established in June 2018 based in Kuala Lumpur. It was positioned to serve as a hub in Southeast Asia for product development, investment and distribution, based on the maturity and dynamism of the market and its regulatory framework. The organisation was instrumental for product development in the ASEAN region, strengthening its position as the hub for manufacturing shariah-compliant products for the Value Partners Group. Looking at the current scenario, Malaysia's regulatory ecosystem on shariah has come on a firm footing and has been dubbed the most advanced globally.

Value Partners Malaysia has recently introduced the world's first Shariah China A-Shares 100 ETF, an exchange-traded fund officially launched on 12 July 2021 and listed on Bursa Malaysia on 28 July 2021.

The VP-DJ Shariah China A-Shares 100 ETF exposes investors to Shariah-compliant stocks within the China A-Shares equity universe. The fund is an A-share ETF with a shariah-compliant structure and is entirely passive. It fully replicates the Dow Jones Islamic Market China A-Shares 100 Index. The 100 constituents are screened based on a set of shariah criteria set by Dow Jones. Due to the quantitative criteria adopted by the index, the China A-Shares ETF will provide investors with exposure to China's new economy and allows them to participate in the changing dynamics and positive growth trends of the economic structure, as China moves toward focusing on becoming a consumption and services-led economy. The new economy of China includes sectors like technology, consumption, healthcare and 5G. With the recent inclusion of China A-shares into global indices, increased foreign participation in the market is expected to grow positively, leading to upward asset revaluation.

There are currently only five shariah-compliant ETFs listed on Bursa, and VP-DJ Shariah China A-Shares 100 ETF became the sixth, providing shariah and non-shariah investors further options for diversification. Due to its large population size and independent economy, the market correlation between China A-Shares and other equity markets remains low, making the China A-Shares ETF a vital portfolio diversification tool for investors.

We strongly believe that the investment appetite of Malaysian investors will continue to evolve, and various instruments at a cheaper cost with quick access, like our Shariah China A-Shares ETF, will continue to play an essential part in investor's portfolio construction in the country.

On the same token, Value Partners Group has innovated its capabilities from being China equity focused to include fixed income, multi-asset and income-focused strategies. Launching a shariah ETF was just part of this evolution.

As an expansion of its shariah offering in Malaysia as well, Value Partners Malaysia had launched a real estate fund that tackles one of the key social issues in Malaysia - housing for foreign workers, which came into prominence following the Covid-19 pandemic. The fund, with an ESG bias, is aimed to attract institutional investors as they increase their allocation to ESG focused strategies and at the same supporting a key agenda for the country. The demand for workers dormitories (also known as Purpose Built Workers Accommodation "PBWA") will come largely from the manufacturing and construction sector. Malaysia has roughly 2 million foreign workers which are required to be housed properly based on the amendment to the Bill on Workers' Minimum Standards of Housing and Amenities Acts 1990. This is also in line with international guidelines like the Responsible Business Alliance and International Labor Organisation.

Investment views on China

The global stage was set to push the restart button in 2021. In December of last year, the consensus was about the eventual vaccine rollout that should unlock a gradual recovery process this year. Indeed, we have seen improvements in the economy during the first half. While regulatory changes have made the market more volatile in recent months, we view that these reforms align with the government's goal of achieving quality growth, shaping the country's long-term development.  While recovery was robust in China post-pandemic, we expect economic growth to continue but moderate in the second half of the year. That said, we view that policies will remain accommodative but targeted, as maintaining economic stability continues to be an essential item on China's agenda. 

Although we are not expecting the economic growth in China during the second half to be as exciting as the first half this year, we believe that policies should help China's economy be on track with its recovery. While regulatory changes have resulted in volatility in markets in recent months, we view that these reforms align with the government's goal of achieving quality growth, shaping the country's long-term development. Unlike the more developed markets, China's new economy sectors are still in their early stages, having a lax regulatory environment. Developed markets have gone and even continue to go through these regulatory challenges. In the US, for example, internet companies were and still are being scrutinised for privacy issues. The reforms also underscore China's move towards its "common prosperity" policy, which focuses on social welfare and social equality. Thus, sectors that are facing reforms include healthcare, education and housing. 

While we continue to favour companies riding on the structural growth cycle, we believe that it is critical to be aware of how policy changes can impact individual names. At the same time, it is crucial to be selective in our bottom-up approach and choose quality names, including those with solid balance sheets and good governance and compliance practices that will be rewarded in the current macro environment.

The article is written by Durraini Baharuddin who is the Managing Director of Value Partners Asset Management  Malaysia Sdn. Bhd.  Value Partners Malaysia serves as a hub in Southeast Asia for product development, investment and distribution, based on the maturity and dynamism of the market and its regulatory framework. 

Investors should note that investment involves risk and past performance is not indicative of future results. Investors may not get back the full amount invested. The price of units and distribution payable, if any, may go down as well as up. Past performance of a fund should not be taken as indicative of its future performance. Investors are advised to read and understand the contents of the prospectus dated 12 July 2021 which has been duly registered with the Securities Commission Malaysia, before investing. Investors should consider the fees and charges involved, and risk factors of the fund in particular those associated with investing in emerging markets. Investors can obtain a copy of the prospectus from Value Partners Asset Management Malaysia Sdn. Bhd. or its authorised participating dealers. Registration of documents with the Securities Commission of Malaysia does not indicate that the Securities Commission of Malaysia recommends or endorses the product. This material has not been reviewed by the Securities Commission of Malaysia.

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