Whiplash over for Shariah equity funds

The lingering impact of ultra-low, then high interest rates, plus various financial impetus by governments to counter the pandemic-induced economic downturn, finally petered out in 2025 – as seen in the performance of Shariah equity funds tracked by the IFN Investor Funds Database.

Following the lifting of pandemic restrictions in 2022, as more economic activities recorded positive trajectories during the recovery phase – all of which were reflected quickest in equities surging – Shariah fund launches also peaked to capitalize on this confluence of opportunities.

Table 1: Shariah new fund launches by asset class (2016-2025)

Source: IFN Investor Funds Database

The bulk of the new equity fund launches took place in Malaysia and Saudi Arabia – with the latter’s expansion amid the establishment of major national projects, coming as caution crept into Malaysian fund managers.

“The Saudi government’s push to diversify away from oil under Vision 2030 generated a wealth of new investment and business opportunities alongside capital market reforms which made investments on Tadawul more efficient and attractive to institutional and retail investors,” said Sidra Capital Asia Pacific Investments Head Azlan Firman.

Chart 1: Top new Shariah fund launches by asset class (2016-2025)

Source: IFN Investor Funds Database

“While Vision 2030 is the main driver towards making Saudi capital markets an attractive proposition for local and international investors, the authority’s right policy decisions or picking the low hanging fruits produced small wins along the way, cumulatively turned domestic listed equity into an attractive asset class which in turn spawned equity funds in the Kingdom since 2020,” Azlan emphasized.

Among the key developments driving the Shariah equity funds’ upward trend would be the gradual opening up of Tadawul to foreign investors – a critical step towards making Saudi Arabia an attractive investment destination.

“The result can be seen in the inclusion of Tadawul in the MSCI Emerging Markets Index and the rise of Tadawul’s market capitalization from SAR2 trillion (US$533.33 billion) in 2019 to SAR11.1 trillion (US$2.95 trillion) in 2023.”

The attractiveness of equity funds was also seen in the launches of new Shariah mixed asset funds – especially those incorporating businesses involved in Saudi government-sanctioned projects, upon which local institutional and retail investors can leverage in search of returns, noted Azlan.

However, progressive increases in interest rates to rein inflationary pressures – resulting from economic stimulus post-pandemic – plus the sudden imposition of high tariffs by the Trump administration saw equity exuberance tempered globally in 2025.

The moderation of new launches was also seen in Shariah money market and fixed income funds – as high interest rate returns began moderating in 2025. With no major global influences seen so far, economic trends should remain steady and new Shariah fund launches should be moderate, said Azlan.

Also read: New Shariah fund launches stabilize in 2025