Mutual fund assets in Southeast Asian markets tracked by Boston-based financial services firm Cerulli & Associates are expected to rise to $129 billion in 2013 from $82.5 billion at end-2008 -- an increase of 56%. Cerulli tracks Singapore, Malaysia, Thailand, Indonesia, Philippines and Vietnam in Southeast Asia.

Cerulli's projections for Southeast Asia and the individual markets factor in local trends and developments as well as the impact of the global financial crisis on asset management companies and investor sentiment.

"We are making allowances for the fact that the next two years are going to be very difficult for all the markets, especially the more developed ones, because of the global financial crisis," says Ai Meun Lim, a Singapore-based director at Cerulli.

Thailand is expected to continue to hold the biggest share of mutual fund assets in Southeast Asia, with projected assets under management of $61.2 billion in 2013 from $38.5 billion at end-2008. Thanks in large part to the powerhouse distribution network of banks with asset management company affiliates, plus the strong demand for fixed-income funds. Mutual fund assets in Thailand made up 47% of the total in Southeast Asia at end-2008. Thailand is expected to hold on to its lead over other markets in Southeast Asia because of the increasing number of people converting portions of their bank deposits into investments, particularly in fixed-income assets. The steady, strong demand for fixed-income assets from corporates is also expected to drive mutual fund assets higher.

Malaysia and Singapore are expected to come second and third, with mutual fund assets of $32.6 billion and $22.6 billion, respectively, by 2013.

Although Cerulli expects Thailand to lead the pack in terms of absolute AUM figures, Malaysia is expected to be the leader in terms of the projected compounded annual growth rate (CAGR) for the five-year period, at 12.8%. Thailand takes the second spot in terms of the projected five-year CAGR at 9.7%, while Indonesia is third at 8.5%

Malaysia's advantage over other Southeast Asian markets, and in fact over all markets in the whole of Asia, is its Islamic investments niche. Malaysia's government and regulators are stepping up efforts to develop Malaysia as an global hub for Islamic investments, and have already succeeded in attracting eight international fund houses to set up Islamic fund management companies in that market. The eight international fund houses are Aberdeen Islamic Asset Management, BNP Paribas Islamic Asset Management, Nomura Islamic Asset Management, Kuwait Finance House (Malaysia), DBS Asset Management, CIMB-Principal Asset Management, Global Investment House and Reliance Asset Management.

Malaysia has a stock market that is more than 85% sharia-compliant, is the world's largest issuer of Islamic bonds, and has more than 140 Islamic funds. Sharia principles generally preclude investment in businesses such as conventional financial services, alcohol, pork-related products, gambling, leisure and entertainment. Sharia principles also preclude interest-bearing investments and investments in companies with unacceptable levels of debt.

Indonesia's strong growth figure is due mainly from its low starting point in terms of AUM.

Singapore's projected five-year CAGR is only 5.8% because it is already a fully developed market has less room for growth compared with other markets in Southeast Asia. Singapore is also expected to be more affected by the global financial crisis due to the large exposure of the market to equity funds and exotic products and investment styles, whereas other markets in Southeast Asia tend to be more conservative both in terms of product offering and demand.

Southeast Asia's fund industry has been coping with the global financial crisis better than its neighbours in North Asia. Mutual fund assets and outsourced institutional assets in Southeast Asia declined by 18% and 21%, respectively, in 2008. In the same period, China's mutual fund assets shrunk by 43%, Taiwan's by 37%, and Japan's by 29%. Cerulli attributes this to the relatively conservative portfolios of retail and institutional investors in Southeast Asia. Within the region, Malaysia, Thailand and Indonesia even posted mutual fund net inflows in 2008.