Global equities retreated, declining 1% during Q3 2021, as measured by the S&P Global BMI. Shariah-compliant benchmarks, including the S&P Global BMI Shariah and Dow Jones Islamic Market (DJIM) World Index, declined similarly, each losing 0.8% during the period.
While the quarterly figures narrowly favored the Islamic indices, their YTD performance lagged, in part due to strength in the Financials sector. All major regional conventional benchmarks returned positive performance YTD, while the Shariah-compliant DJIM World Emerging Markets Index and DJIM Asia/Pacific Index declined.
Strength in Financials Sector Drives Underperformance of Shariah Indices YTD
While global equities enjoyed broad gains YTD, sector drivers helped explain a majority of the underperformance of Shariah benchmarks. Financials—which is nearly absent from Islamic indices—gained 21.1% YTD, explaining a majority of the performance differential, while weights in Energy and Health Care also played a role in the relative underperformance.
Exhibit 2 displays the sector returns along with the effect of over- and underweight sector allocations, as well as the impact of specific stock exclusions from the S&P Global BMI Shariah compared to its conventional counterpart. Strong gains of stocks within the Communication Services sector—which contains Alphabet and Facebook—helped offset some of the sector-driven underperformance.
MENA Equities Continued to Gain YTD
MENA regional equities gained considerably YTD, as the S&P Pan Arab Composite advanced 31.0%. The S&P Saudi Arabia BMI led the way in the region, gaining 37.5%, followed by the S&P United Arab Emirates BMI, up 35.9%. The S&P Bahrain BMI led the way in the region in Q3, gaining 10.9%, followed by the S&P Kuwait BMI, which gained 7.9%. All MENA country indices remained positive YTD, except for the S&P Egypt BMI, which was down just 0.4% YTD.
For more information on how Shariah-compliant benchmarks performed in Q3 2021, read our latest Shariah Scorecard.
This article was first published in IFN Volume 18 Issue 41 dated the 13th October 2021The posts on this blog are opinions, not advice. Please read our Disclaimers.