Equities: Reacting to US Fed rate cut

Key Highlights

• Asia exhibits healthy growth

• Islamic equity funds grew on a global level in Q3 2024

• Launch of three new fully Islamic equity funds

Overview

Tentative performance trends since early this year for global equities, due to uncertainties related to when the US Federal Reserve would cut interest rates, firmed towards the end of Q3 2024 once the US rate cuts were announced on the 18^th September 2024.

In line with earlier investment trends, this US rate cut led to strong inflows into emerging market equities – while causing dips in developed economies. Economic stimulus announced by China next led to Asian stocks rallying in response, together with emerging markets in Africa.

While tensions in the Middle East continue to cast a shadow over that region, other jurisdictions generated their greatest returns in Q3 2024. The IFN Investor Funds Database showed Singapore, Pakistan, Luxembourg, Malaysia and the US charting the highest three-month average returns in Q3 2024.

Islamic equity funds grew 3.28% overall from US$47.83 billion as at the end of Q2 2024 to US$49.4 billion for Q3 2024. As at publication time, The IFN Investor Funds Database is tracking 704 equity funds – an increase of 38 funds compared to previous quarter. With the addition of 32 Turkiye Islamic equity funds, with a total combined assets under management (AuM) of US$1.75 billion, the tracking total stands at US$51.15 billion

The Middle East hosts 176 funds, Asia Pacific has 385 funds, Europe features 96 funds, Africa offers 27 funds and the Americas manage 20 funds.

Chart 1: AuM of Islamic equity funds by region as at the end of Q3 2024

Source: IFN Investor Funds Database

Table 1: Largest Islamic equity funds globally as at the 1^st October 2024

Table 2: Top 5 countries with the largest Islamic equity funds as at the 1^st October 2024

AuM growth

Islamic equity funds experienced growth in most regions as Africa led the way with a 17% increase, followed by the Asia Pacific region. The Middle East AuM grew slightly while that for the Americas saw a mild reduction, as did Europe.

• Africa: Up by 17.1% to US$1.54 billion from US$1.32 billion.
• Asia Pacific: Up by 10.43% to US$15.78 billion from US$14.29 billion,
• Middle East: Up by 0.43% to US$11.79 billion from US$11.74 billion.
• Europe: Down by 0.6% to US$9.91 billion from US$9.97 billion.
• Americas: Down by 1.29% to US$10.38 billion from US$10.52 billion.

ROI analysis (Three-month returns)

Table 3: Top performing Islamic equity funds in Q3 2024

New players and products

In the third quarter of 2024, IFN Investor reported the launch of three fully Islamic equity funds.

Al Rajhi Capital introduced two new funds: the Al Rajhi Large-Cap Fund, valued at US$246.55 million, and the Al Rajhi Petrochemical Fund, worth US$160.84 million. Both funds focus on the equity asset class.

Additionally, Alfalah Asset Management launched the Alfalah Islamic Stable Return Plan-III Fund, an income fund currently valued at US$92,268. Since the beginning of the year, IFN Investor has observed a total of 18 equity fund launches globally, with a combined value of US$666.63 million.

Outlook

As H2 2024 is seeing a shift in the equities market in reaction to the US Fed rate cuts and US election uncertainties, the nascent volatility in markets continue to operate as anticipatory mechanisms – attempting to forecast growth and/or recessions, though their track record has been inconsistent.

Other potential impacts could be the continued tensions in Ukraine and the Middle East, together with spillover effects of global oil prices potentially spiking due to the proximity of these clashes to major crude sources.