Islamic equity markets are on the up as the investment cycle turns away from fixed income and interest in equities begins once more to rise. As Islamic corporates seek alternative ways to raise capital and investors flood back to the stockmarkets, REBECCA SIMMONDS looks at the latest developments in Shariah compliant securities trading.
In 2013, the global performance of various Shariah compliant indexes almost equaled and in some cases bettered their conventional counterparts in 2013, such as in the case of the S&P Global BMI Shariah which gained 21.2% compared to the S&P Global BMI which rose by 21.1%. Regionally, the story was much the same with the Dow Jones Islamic Market Index GCC up 25.8% and the Dow Jones GCC up 25.4%; the S&P Pan Asia BMI Shariah gained 5.2% and S&P Pan Asia BMI was up 10.2%, S&P Europe BMI Sharia was up 20.2% and S&P Europe BMI rose by 23.9%.
International exchanges
In November last year, the Bahrain Bourse and Saudi stock exchange Tadawul signed an MoU to increase the existing cooperation between the two bourses; this following an agreement signed between Tadawul and Abu Dhabi Securities Market earlier on in the month. In December Oman’s Muscat Securities Market signed an MoU with the Tehran Stock Exchange to strengthen inter exchange cooperation. In February this year, Malaysia’s Bursa Malaysia and Tadawul also signed an agreement to create closer economic ties, rooted in the Islamic finance sector between the two countries.
Malaysia: In November, Bursa Malaysia issued a revision of the Shariah compliance screening applied to companies listed on the bourse by integrating a two-tier quantitative approach. The updated list of Shariah compliant entities issued in November named 653 entities in compliance with revised screening requirements. Bursa Suq Al-Sila (BSAS), the country’s commodity trading platform specifically dedicated Islamic liquidity management and financing by Islamic banks, in 2013 recorded a 69% increase in its average daily trading value to RM3.9 billion (US$1.2 billion), an increase from RM2.3 billion (US$705.13 million) in 2012.
Europe
UK: In October last year following the announcement of the UK’s impending sovereign Sukuk issuance, the FTSE Group, a wholly-owned subsidiary of the London Stock Exchange, launched the FTSE Shariah Developed Minimum Variance Index. In February this year UMEX Securities, which currently offers UMEX Trader, a platform that allows trading ethically worldwide with access to data from more than 40 exchanges, launched UMEX Tradebridge, an Islamic trade finance service, primarily utilizing Murabahah and Wakalah structures.
Middle East
In November 2013, Tadawul and the Abu Dhabi Securities Exchange (ADX) agreed to cross-list shares. This was followed this year, by ADX issuing a recommendation that stakeholders consolidate back office operations and processes for settlement and regulation between ADX and the Dubai Financial Market, as an alternative should the proposed merger, which has been on hold for three years so far, not take place.
In June 2013 MSCI announced the upgrade of the UAE and Qatar and their respective bourses to emerging market status; as a result, in the UAE, stock value owned by foreign institutional investors rose to AED2.4 billion (US$653.28 million) in January 2014. Dubai Investments PJSC, Dubai Islamic Bank, First Gulf Bank and Abu Dhabi Commercial Bank were some of the top performing stocks in the UAE in 2013 and have seen foreign investor interest rise since the release of the provisional MSCI revised index ahead of the official list to be released on the 14th May 2014. S&P Dow Jones has also elected to upgrade the two countries and their exchanges to emerging market status from September 2014.
Dubai: In March this year, the Dubai Multi Commodities Centre teamed up with global brokerage firm BGC Partners, as its first brokerage partner to increase activity and promote its Shariah compliant commodity trading platform Tradeflow, to a wider audience. At the start of April, NASDAQ Dubai, Emirates Islamic and Emirates Islamic Financial Brokerage announced the launch of a new platform, the NASDAQ Dubai Murabahah Platform. The platform utilizes Shariah compliant certificates based on Wakalah investments that have been developed for use as the underlying assets for all financing transactions. During the six-month pilot phase the platform handled over AED2 billion (US$544.45 million) in financing business for its clients.
Opportunities and outlook
As evidenced by the interest in the stocks in the UAE and Qatar following the announcement of their status upgrade, emerging markets and the markets new to Islamic finance are seen as opportunities in the equity market and although the equity markets in the GCC are picking up, Sukuk is still generating more interest from investors.
The asset classes that are showing movement in the Middle East are gold, financial services, mining and minerals, real estate, shipping and technology. Industry experts have reported a much faster-moving market already this year and have seen a migration in companies planning to list on an exchange. Whilst previously they may have dual listed on both NASDAQ Dubai and the London Stock Exchange, a move toward London has been noted, as companies seek to take advantage of investment by institutional investors.