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[KUALA LUMPUR] The world's second-largest asset manager by market value plans to lure some of the US$376 billion parked in Malaysian bank deposits by setting up global Islamic stock and bond funds in Kuala Lumpur next year.
Franklin Templeton Investments, which has more than US$801 billion in assets, will seek approval from the regulator to start at least two Shariah-compliant funds to serve as offshoots from the three it has in Luxembourg, country head Sandeep Singh said in an interview in the Malaysian capital last week.
That would complement similar investment options available from CIMB- Principal Asset Management Bhd and RHB Islamic International Asset Management Bhd.
The new funds will beef up choices for Malaysians looking to diversify after this year's 17 per cent plunge in the ringgit and a political scandal involving Prime Minister Najib Razak hurt confidence.
A looming US interest-rate increase has already prompted global investors to offload twice as many stocks in the Southeast Asian nation as they did for all of last year and to cut bond holdings.
"People are looking at more international investments because the volatile currency highlighted the merits of diversification," said Mr Singh. "As markets get more sophisticated, it's a matter of time before global equity and bond funds get more traction among Malaysian investors."
The San Mateo, California-based fund trails behind BlackRock Inc in terms of assets, according to data compiled by Bloomberg.
'Healthy Trend' Franklin Templeton launched its first Shariah-compliant bond fund in Malaysia at a presentation in Kuala Lumpur on Nov 19, targeted at local individual and corporate investors.
It currently oversees more than US$4 billion of Islamic and conventional assets in the country on behalf of institutions and high net-worth investors, said Mr Singh.
The firm's Luxembourg funds have been drawing interest from investors globally, he said. One of those dedicated to sukuk and another to equities have given cumulative net returns of 7.53 per cent and 11.1 per cent, respectively, over the past three years, according to the company's fact sheet.
It's a "healthy trend," given that the availability of Islamic funds is small compared with conventional counterparts, Mr Singh said.
BIMB Investment Management Bhd, a unit of Malaysia's oldest bank providing services in accordance with Muslim principles, also started a multi-currency global Shariah investment option this month.
Key to expanding funds operating along religious guidelines is better education and greater awareness, said Raj Mohamad, managing director at Singapore-based consultancy Five Pillars Pte.
Standard & Poor's forecasts growth in the US$2 trillion Islamic finance industry will slow to the single digits in 2016 from 10 per cent to 15 per cent over the past decade.
"There are still investors who believe it is for Muslims only," Mr Raj said. "We will most certainly have better acceptance and take-up if the structure, return and risk profile are better explained. "
It may still remain a challenge for Islamic bond funds to deliver competitive returns when there's not enough supply to meet demand, a lingering gripe in an industry that Ernst & Young LLP sees reaching US$3.4 trillion by 2018.
Sukuk sales in the world's biggest market of Malaysia fell 27 per cent in 2015 to RM40.1 billion (S$13.4 billion) from a year earlier, the least since 2011, according to data compiled by Bloomberg.
As the ringgit weakened this year to become Asia's worst- performing currency, foreign investors pulled RM18.5 billion from Malaysian stocks, more than the RM6.9 billion for the whole of 2014, according to a report from MIDF Amanah Investment Bank Bhd. There's also been an outflow of 16.2 billion ringgit from debt.
"It's natural for us to offer the funds to Malaysian investors given the developed finance market here," Mr Singh said.