DUBAI A leading Dubai -based asset manager has called for putting an end to mischaracterising the liquidity problem in the region's Islamic bond market as a "sukuk specific problem" and instead, address the specific demand and supply side challenges to develop a cogent secondary market for the asset class. "We have to move away from calling this as a Â€˜sukuk specific' challenge, said Mohieddine Kronfol , chief investment officer, global sukuk and fixed income at Franklin Templeton Investments during a panel discussion on Tuesday at Sukuk Congress held in Dubai . "This is more of a development story that has to do with the overall broad development of financial markets in the GCC , but also in other developing and emerging markets." It is not true if one says sukuks are not liquid, he said. "Sukuks are as liquid as conventional bonds are liquid in the region," said Kronfol. As with any financial market, what makes it vibrant and deep is having many types of investors, with different investment profiles and different investor needs. To have that, the region is in need of a much more developed financial services industry. What plagues the GCC is that it is dominated by banks. Banks are just one type of investors. The other types of investors are international broker-dealers. Secondary market "There is very little in the form of pension funds, mutual funds, insurance companies, retail investors that would add a lot towards the development of the secondary market," said Kronfol. On the demand side, a lot can be done to create asset pools, develop non-bank financial services, carry out pension reforms, bankruptcy regimes and governance standards. That's not going to happen overnight, he added. "That will happen with good policy, good legislation and a holistic approach to developing financial markets, which is happening at almost too slow a pace right now. That's the fundamental challenge I think today." On the supply side, there are obviously ratings that can be had, issues programmes established, and macroprudential guidelines etc., he said. "On the supply side, the governments can issue more paper, they can do much more to encourage and educate the people who come to the market, they can improve the legal system, treat foreign investors like they treat the local ones, encourage more companies that want to come to the market," said Kronfol, adding the real issue is on the demand side that is happening too slowly. Answering a question from Gulf News on how to make it available to retail investors, Kronfol said it is necessary to create the channels to which such investors can access markets. "You need to create the legal environment that makes you confident for you to invest. Clearly, what I am talking about is creating the asset management industry, make it a much more effective, make it much conducive so that you can really develop them. [And that means] retail investors can access such investments through mutual funds."
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