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Dow Jones Islamic Market Indexes Commentary: September 2011

Date 06/10/2011

By Gérard Al-Fil

September marked a turning point for the global markets as the price rally in gold was halted (at first), and oil prices fell significantly. Investors, however, continued to wait for a turnaround as the majority of financial markets remained lower. “The Sky falls in,” said Gary Dugan, Chief Investment Officer, Private Banking, at Emirates NBD in Dubai. “The Eurozone is now seen for what it is – a failed economic experiment.” As markets become increasingly nervous about a possible sovereign default in Greece, only a few exchanges bucked the downtrend.

Within the Dow Jones Islamic Market Indexes (DJIM) family, the DJIM Pakistan Index posted the largest advance in September, gaining 3.50%. With its year-to-date gain of 5.32%, the DJIM Pakistan Index is also the DJIM family’s top gainer for the first three quarters of 2011. And, while the DJIM Kuwait Index added 0.20% in September, it is down 17% since the beginning of the calendar year, making it one of the top losing composites year-to-date.

“Due to the politically divided environment, along with some corruption scandals in Kuwait, the Kuwaiti government’s ability to implement its ambitious $104 billion investment plan is compromised,” said David Lubin, Head of Emerging Markets Economist at Citigroup. “It is unlikely, in our view, that full execution of the plan will occur, with a more realistic scenario of around $70 billion of the projects actually being implemented, at best.”

All other Shari’ah-compliant benchmarks in the DJIM Indexes family posted losses in September. It is noteworthy that the emerging markets in the East - and not the Western indexes of debt-crisis-ridden Europe and the U. S. – suffered significant drops: the DJIM BRIC Index and the DJIM Hong Kong Index both ended the month down 15.60%. The two benchmarks were only underperformed by the DJIM China Offshore Index, which plunged 18.84%. In comparison, the U. S. bellwether index, the Dow Jones Industrial Average, fell 6%.

Meanwhile, as oil prices dipped by almost a tenth last month to less than $80 per barrel (U.S. crude), the DJIM Oil and Gas Index and the DJIM Basic Materials Index plummeted 13.14% and 19.18%, respectively, in September. All 10 DJIM Indexes declined year-to-date, with six of them posting losses of more than 10%. “Whilst there is only a one in 34,000 chance of being hit by a satellite, it is now a near certainty we will get a global recession,” Emirates NBD’s Dugan said. “We are already seeing signs of companies in many parts of the world announcing further rounds of job cuts and restructuring.”

Despite the gloominess, there was some favorable Islamic finance news:

  • an Ernst and Young report indicated that global Islamic fund assets under management increased by 7.6% to $58 billion in 2010;
  • Barclays Capital (Middle East) has received a license from the Dubai Financial Services Authority to develop and offer Shari’ah-compliant product; and
  • the Abu Dhabi National Energy Company, one of the largest oil and gas firms in the Gulf Arab region, announced plans to sell as much as US$1.1 billion of Islamic bonds in Malaysia.