Carry, currency and conviction in a volatile 2026
Key takeaways from a Global Islamic Financial Institutions Forum panel on positioning portfolios amid geopolitical and policy shocks.
This article outlines the key discussions from the investment panel at this year’s Global Islamic Financial Institutions Forum. Topics included whether investors are being paid enough for the risks they are taking and the trade-offs in Shariah-compliant portfolios, as well as where new capital should go and why currency hedging matters more than carry.
Equity markets have shown resilience in 2026, reaching new highs despite repeated geopolitical shocks, shifting policy signals and uncertainty over the path of interest rates.
For investors, resilience can cut both ways, giving rise to questions about whether today’s valuations still offer enough compensation for the risks, or whether confidence has started to outrun caution.
At Standard Chartered’s annual Global Islamic Financial Institutions Forum in Kuala Lumpur, a panel of asset managers, bankers and institutional investors discussed carry, currency and conviction and how Malaysian and Shariah-compliant portfolios should be positioned for the months ahead.
The moderator, Arulnathan Dass, Executive Director and Head of Investment, Public Sector, Standard Chartered Malaysia, set the context early. While Islamic finance has recorded rapid growth in percentage terms, it has grown from a relatively low base and remains a small share of total assets in absolute terms. Dass suggested the discussion would leave the audience “with more questions than answers, but hopefully, you will leave with better questions”.
Are investors being paid enough for the risk?
Key insights from the discussion
- Markets have become desensitised to tail risks, as the search for returns outweighs caution.
- Asian equity gains have been strong but concentrated in a handful of AI and technology names.
Markets have become “very specialised in desensitising” news, events and tail risks, said Hanif Ghulam Mohammed, CEO, Affin Hwang Investment Bank Berhad. They keep rising regardless of policy swings and changes of government.
“The fact that we have to look for returns far outweighs the risks that we are pricing,” he said. “My take is that we are severely underpricing tail risks.”
Izad Sallehuddin, CEO, Principal Islamic Asset Management Sdn Bhd, said Asia Pacific equities have been the standout theme of 2026. Some Asian equity funds have delivered exceptionally strong gains this year, but performance has been concentrated. Korea and Taiwan accounted for much of the region’s gains, driven by a relatively small group of AI-linked companies, including TSMC and SK Hynix.
“As long as they can continue to deliver earnings, the market will give them that premium,” Sallehuddin said. He added that being underweight, these stocks can themselves be a source of risk.
Deenash Rama, Vice President and Economist, Kumpulan Wang Persaraan (KWAP), described the environment through what he called the “triple B” of blowback, bonds and barrels. He urged investors to think in terms of “E, F, G” – economy, finance and geo-macro.
Sabir Ahmed, MD and Head, Banking & Markets, Standard Chartered UAE, argued that the more important question is diversification across currencies, geographies and asset classes.
He pointed to the GCC, where regional conflict has raised risk premiums. Funding there has not stopped. It has moved toward private placements and syndicated facilities, because issuers do not want to reset their public pricing curves.
Shariah portfolios: A smaller universe, a firmer floor
Key insights from the discussion
- Shariah equity portfolios have kept pace with conventional ones, helped by technology investments.
- The global sukuk universe, particularly in high yield, remains too thin to match conventional fixed income returns.
Shariah-compliant investing rests on low leverage, real assets and prudent risk-taking. The panel considered whether that leaves Shariah investors structurally disadvantaged.
On equities, Sallehuddin said the answer is largely no. Shariah screens exclude many financial stocks, so Islamic equity portfolios have naturally benefitted from the tech-led rally. He noted that the Employees Provident Fund’s Shariah returns last year matched its conventional returns.
Fixed income is a different story. Sukuk issuance is dominated by strong sovereigns in the GCC and Malaysia, which limits downside in times of stress. But the pool of strong US dollar issuers is small, and high-yield sukuk options can be scarce. That makes it harder to match a conventional portfolio combining investment grade and high yield.
Mohammed argued that the sector has yet to answer deeper questions about what Shariah compliance should mean.
“Have we really considered AI companies, given the damage they can do?” he asked. In his view, the industry still looks at compliance mostly through structure and business composition rather than impact.
Mohammed’s conclusion was that “returns will be challenged, but downside is contained”. Shariah investors could not use leveraged products, he noted, but that also spared them when leveraged ETFs unwound.
Where the next ringgit goes
Key insights from the discussion
- Deglobalisation is creating opportunities in domestic infrastructure and private markets.
- GCC capital is increasingly flowing to Asia and Africa, raising the question of whether those markets have enough Shariah-compliant investment avenues.
Asked where he would put a new ringgit today, Rama pointed to the domestic economy: infrastructure and private equity. KWAP is working to stimulate Malaysia’s private equity market as part of its “purpose beyond return” programme.
“Every country is now becoming inward,” he said. As globalisation gives way to more inward-looking policies, building a self-sustaining domestic ecosystem offers a natural hedge.
Where would Rama not put it? Stretched valuations. He noted that one company’s market capitalisation briefly reached around USD5 trillion, roughly the nominal GDP of the UK.
“This is what will keep any investor up at night,” he said, pointing to the dot-com era and the need to scrutinise balance-sheet liquidity and free cash flow.
Ahmed described how the sukuk proposition works in practice. For issuers, the value of a sukuk is access to an additional pool of liquidity that can only invest in Islamic instruments. For investors, access to the GCC increasingly requires an Islamic format.
In Saudi Arabia, around 85 per cent of banking is Islamic. Across the GCC, the largest banks are often conventional by licence, but more than 70 per cent Islamic by balance sheet. He also highlighted a shift in capital flows. For years, GCC capital flowed west; now it is increasingly moving to Asia and Africa.
Currency: hedge first, carry second
Key insights from the discussion
- Getting both the asset call and the currency call right is far harder than getting one right.
- The ringgit’s long-term fundamentals are sound, but liquidity-driven tail risks argue for hedging.
Mohammed was clear that investors should not stack bets. With a 50/50 chance on both the asset and the currency, the odds of getting both right fall to around 25 per cent. Hedging the currency removes the second bet.
“Currency is a whole animal on its own,” he said. Mohammed warned that investors often underestimate the idiosyncratic risk in each currency, and that a trader in Tokyo probably knows the yen better than an investor in Kuala Lumpur.
On the ringgit, he remained constructive. “Long term, the ringgit is set to strengthen. The fundamentals are all there.” But its liquidity profile means tail risks can hurt, so investors in real assets should not leave currency exposures open unless they hold a strong view.
Ahmed added that Islamic hedging solutions have now reached parity with conventional ones. “Anything that we do on the conventional side, as far as hedging is concerned, we can do on the Islamic side as well,” he said.
Levelling the regulatory playing field
Asked what single policy shift would deepen liquidity, Ahmed called on regulators globally to treat Islamic finance on a par with conventional finance.
Islamic structures are asset- and service-based, which can trigger tax and regulatory treatment that conventional products avoid. As a result, large pools of liquidity, including from Chinese banks, struggle to reach Islamic financing.
Outlook: Conviction starts with the investor
For the rest of 2026, Mohammed expects volatility to persist and risk premiums to stay elevated. He argued that the growth of Shariah-compliant investment depends as much on investors as on product structures. Moving beyond fixed-profit instruments toward genuine risk participation requires a change in behaviour.
“Have we, as consumers and investors, changed our investment behaviour?” he asked. Until savers are willing to shift from fixed deposits and money market funds into risk-sharing investments, Mohammed said, Islamic finance will continue to lag.
Arulnathan Dass, the moderator, closed on the idea that uncertainty is the one constant and the future remains deeply uncertain, “which, fortunately for us, is still why we have a job, despite ChatGPT, Copilot, Claude and Gemini,” he said.
Watch the full panel discussion here:
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