Are markets losing faith in Islamic finance?

Everyone has been talking about Islamic finance, viewing it as a beacon of hope in the otherwise dreary landscape of the current economic crisis. Even the Vatican believes so. The results, until now, have backed up this optimism: in 2008 the Dow Jones Islamic Market Sustainability Index outperformed the conventional Dow Jones Sustainability Index.

Also, the FTSE All-World Index has shed 42.3 per cent over the past 12 months, while the Sharia’h-compliant version of the index has lost 37.6 per cent over the same period. (See Gulf Business April 2009 edition for a detailed analysis).

However, the latest figures tell a different story. On the close of trading on April 27, the global Dow Jones Islamic Market Titans 100 Index, which measures the performance of 100 of the leading global Shari’ah-compliant stocks, had gained 3.81 per cent month-to-date. In comparison, the Dow Jones Global Titans 50 Index, which measures the 50 biggest companies worldwide, had posted a gain of 4.61 per cent.

Breaking down the performance by region, Islamic stocks have not fared better in any region save the Gulf. The Dow Jones Islamic Market Asia/Pacific Titans 25 Index rose 6.35 per cent, while the Dow Jones Asian Titans 50 Index increased 10.20 per cent.

Moving to Europe, the Dow Jones Islamic Market Europe Titans 25 Index rose 4.93 per cent. In comparison, the Dow Jones STOXX 50 Index, which measure European blue chip stocks, gained 8.53 per cent.

In the US, the Dow Jones Islamic Market US Titans 50 Index rose 2.94 per cent, as opposed to the Dow Jones Industrial Average, which gained 5.47 per cent.

The numbers are, however, a different for the GCC. The Dow Jones Islamic Market GCC Index gained 13.32 per cent over the same period, while the conventional Dow Jones GCC Index did not fare as well as its Islamic counterpart, rising only 9.98 per cent.

That conventional finance has outperformed Islamic finance could be just a temporary phenomenon. Or it could be the beginning of a long-term trend, who knows. But it’ll be wise to not discount Islamic finance just yet – although it may be prudent to invest in Shari’ah-compliant products close to home.

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