Underexposure to banks causes Islamic indices to lag

Oriental mosaicTwo major sharia-compliant indices trailed their conventional counterparts in the second quarter – a result attributed to their low exposure to the financial sector.

The S&P Global BMI Shariah index fell 0.6% and the Dow Jones Islamic Market World Index fell 0.8% in the quarter, trailing their conventional counterparts by 60 basis points and 70 basis points, respectively.

Michael Orzano, director of equity indices at S&P Dow Jones Indices, attributed the result to each index having a low weighting to the financial sector, which performed well in the quarter.

Sharia-compliant investors are obliged to be underexposed to banks because of the Islamic prohibition on charging interest.

Islamic indices in the US, Asia and Europe each underperformed by about the same margin, however the S&P Pan Arab Composite Shariah index, which tracks markets in the MENA region, gained 4.3% in the second quarter.

©2015 funds global mena

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