November 29, 2010

Shariah-Compliant Indexes Struggle in November

Several Dow Jones Indexes posted losses in Islamic markets

Dow Jones reported Nov. 24 that several indices tracking Shariah-compliant stocks fell in November.

The Dow Jones Islamic Market Titans 100 Index (IMXL) measures 100 leading Shariah-compliant global stocks. The Index fell 0.98% as of Nov. 23, to close at 2119.15. The Islamic Market U.S. Titans 50 Index (DJUS50) also fell, dropping 0.63% to 2145.71 and the Islamic Market Europe Titans 25 Index (DJEU25) fell 3.44% to 2053.13.

The Dubai Financial Market struggled in November, as well; the DFM Titans 10 Index posted a month-to-date loss of 6.77%, closing at 2243.47. Indices for Kuwait and Turkey fell also, dropping 2.15% and 4.89%, respectively. While the Islamic market indices suffered, their conventional counterparts posted even larger drops, however. The Kuwait Composite Index fell 1.2% and the Turkey Total Stock Market Index fell 6.4%.

The Asian and Pacific markets fared slightly better, however, as the Islamic Market Asia/Pacific Titans 25 Index (DJAP25T) increased by 2.49% to 2041.49. The Citigroup Sukuk Index increased as well, gaining 0.44% to close at 126.49.

The Basic Materials, Oil & Gas and Consumer Goods industry indices performed well in November, gaining 1.23%, 1.02% and 0.97%, respectively. Financials, Telecommunications and Health Care were the three worst performing industries, losing 5.28%, 2.46% and 1.96%, respectively.

Gerard Al-Fil, a financial journalist and analyst for Dow Jones, noted that the Islamic finance industry is "deeply fragmented" and is "split on the principles of whether hedge funds can ever be acceptable." He pointed to stress from global financial markets as reasons for the drops.

"The emergence of Ireland (and suddenly, Portugal) as the Eurozone’s latest trouble child, reduced U.S. growth prospects announced by the Fed and war drums on the Korean peninsula raised nervousness," he wrote in a market commentary.

Monem Salam, director of Islamic Investing and portfolio manager at Saturna Capital, noted that indices suffer from inflexibility when trying to comply with Islam.

"Nuances in an Islamic investing index don't capture" restrictions the way an actively managed fund can, Salam said in a phone interview. For example, he said, an index might exclude all beverage makers in order to avoid alcohol purveyors, while an actively managed fund can look at a company more closely.

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