Markets remained volatile in March, with the sectors or countries that were recent winners becoming losers.
The Dow Jones Islamic Market Index series is comprised of internationally listed stocks of companies that operate in a halal manner, i.e. in line with Sharia, or Islamic law. This means the indexes exclude all shares of firms that generate their profits from alcohol and pork products, weapons, pornography and interest. Debt-laden entities and cash-rich companies also are judged as haram (not permissible).
Taiwan’s Sharia-compliant composite index led the country performance list, as it did in February. The Dow Jones Islamic Market (DJIM) Taiwan Index outperformed all other country indexes from February 29 through March 25, with a jump of 7.66 percent, slightly more than its conventional counterpart (up 7.32 percent). This exceptional gain stems from Taiwan’s presidential election. With the victory of opposition leader Ma Jing Yeo of the Kuomintang party, which aims to normalize ties with the People’s Republic of China, foreign investors are pouring even more capital into the Taipei Stock Exchange.
In distant second place were the DJIM US Titans 50 Index and the DJ-JS Pakistan Index, both of which inched ahead by 0.98 percent.
The worst-performing markets were the DJIM China Offshore Index (down 18.65 percent), the DJIM Malaysia Index (off 12.91 percent) and the DJIM Indonesia Index (11.48 percent lower). The markets’ conventional Dow Jones indexes also lagged the most. Ironically, in February Indonesia and the DJIM Emerging Markets Index (also down 1.63 percent) were among the top four best performers.
Among the sectors, financials did the best. The DJIM Financial Index, which replicates the performance of Islamic banks and Sharia-compliant insurance firms, or takaful operators, advanced in March by 4.88 percent. The worldwide market for takaful amounts to only about $4 billion, but it is growing at an annual rate of 25 percent – much faster than the Islamic banking sector (up 15 percent to 20 percent a year).
Following financials were the DJIM Consumer Index (+2.21 percent) and the DJIM Technology Index (+2.12 percent). Islamic indexes are tech-heavy. About 80 percent of the indexes in the Middle Eastern markets consist of banks and telecom operators.
Despite oil prices hitting $110 per barrel for the first time, the halal Index for oil and gas companies – the cash cows of many emerging markets – were among the big losers of March. With a retreat of 5.01 percent, the DJIM Oil and Gas Index fared second worst, behind the DJIM Basic Materials Index (down 5.97 percent). Halal Health Care stocks suffered only slightly; the DJIM Health Care Index fell by 1.83 percent).
In another reverse twist, halal commodity stocks were winners the prior month while telecom and consumer shares were losers in February.
Trading is allowed in Islam, but both day-trading and short selling are considered as haram. Also, all known derivatives such as options and futures as well as hedge funds do not comply with Sharia because of their alleged gambling character. The DJIM Indexes give fund managers a tool to invest globally in an ethical manner. According to Failaka research, due to the credit crisis in East and West, Islamic investment funds currently are outperforming conventional funds.
One prominent public investment vehicle that invests according to Sharia is the Oasis Crescent Global Equity Fund, which uses the DJIM as a benchmark. Since its inception in December 2000, it has gained 146 percent, while the DJIM advanced 37.8 percent over the same period. Clearly, Islamic finance can help investors avoid risks in business and also provide attractive returns.
Gérard Al-Fil is a UAE-based business journalist who has worked as a portfolio manager in Switzerland and founded a media company in Dubai. He is a correspondent for the Swiss financial website moneycab.com, for the Swiss banking magazine Schweizer Bank and for the German weekly Euro am Sonntag. He also holds a post-graduate diploma in Islamic Banking from the Institute of Islamic Banking and Insurance (IIBI) in London.
