Shariah Investors Not Immune From Global Equity Market Turbulence, Losing US$5.65 trillion in Third Quarter

Quoted from Business Intelligence, Middle East by Moussa Ahmad

Shariah investors have not been immune from the global equity market sell-off, according to Standard & Poor’s, the world’s leading index provider, with more than US$5.6 trillion wiped off the value of Shariah-compliant equities worldwide during the third quarter of 2008. However, the latest review of the S&P Global Shariah Index Series confirms that in most cases, Shariah investors have benefited from their lack of exposure to financials, which have been the focus of the market sell-off.

Stocks deemed to comply with Islamic law lost 23.4% of their value on a total return basis over the year to 30 September 2008, as measured by the S&P Global BMI Shariah index, which covers 52 of the world’s largest developed and emerging markets. The non-Shariah conventional index, S&P Global BMI, fell 25.3% over the same period. Shariah-compliant stocks in emerging markets bore the brunt of the selling, with the S&P Emerging Markets BMI Shariah plunging 37%, compared to a 35.4% loss for its non-Shariah counterpart.

“While equity markets around the world have experienced a tumultuous quarter, Shariah investors continue to be shielded to some extent by the exclusion from their portfolios of financial stocks and other highly leveraged companies, which do not satisfy the strict compliance criteria associated with Islamic law,” said Alka Banerjee, Vice President, Standard & Poor’s Index Services.

S&P’s Global Benchmark Shariah Index Series reveals the Consumer Staples sector suffered the mildest declines within the Shariah-compliant universe, dipping -0.28% over the third quarter. The Healthcare second followed in second place, with losses of -2.60%. Shariah-compliant stocks in the Materials sector posted the heaviest losses however, down 36.49%.

On a country-basis, Shariah investors fared worse in Australia, Turkey, South Africa and Ireland over the third quarter. The Phillipines, staging a remarkable turnaround after suffering the heaviest losses in the second quarter, was the only country to post a positive return in the third quarter, up 0.8%.

S&P’s Global Benchmark Shariah Index Series covers 52 developed and emerging markets as well as ten GICS (Global Industry Classification Standard) sectors. It is part of Standard & Poor’s family of Shariah-compliant indices, designed to offer a comprehensive set of Islamic investment solutions for both benchmarking and investing activity.

S&P’s Shariah Indices are screened by Ratings Intelligence Partners, an independent Kuwait-based consulting company, which collaborates with the S&P Index Committee to apply a set of independent and objective guidelines for the day-to-day maintenance of each Shariah index. Standard & Poor’s Shariah Indices undergo sector and accounting-based screens that exclude businesses that offer products and services which are considered unacceptable or non-compliant according to Shariah-law.

Best Regard
ZULKIFLI HASAN

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