Global equities ended the first quarter of the year with a gain of 6.9%, as measured by the S&P Global BMI. Meanwhile, Shariah-compliant benchmarks, including the S&P Global BMI Shariah and Dow Jones Islamic Market (DJIM) World Index, also increased during the quarter and outperformed their conventional counterparts by 3.5% and 3.4%, respectively.
Overall, regional broad-based Shariah and conventional equity benchmarks had a positive quarter, despite recent volatility in the banking industry. However, the Pan Arab region declined marginally by 0.5% in Q1, while its Shariah benchmark finished the quarter with an increase of 2.5%.
Drivers of Shariah Index Performance in Q1 2023
Shariah benchmarks outperformed their conventional counterparts during Q1, in contrast to prior quarter returns. Sector composition can provide some explanation for this quarter’s results. Higher exposure to Information Technology stocks within Islamic indices and having no exposure to conventional financial services, including banks, were the main drivers of this outperformance. The Information Technology sector was up 22.6% and represents 29.3% of the index’s weight, driving the highest return contribution among all sectors.
Meanwhile, other sectors experienced double-digit gains, such as Communication Services and Consumer Discretionary, which rose 24.6% and 14%, respectively, in Q1, contributing significantly to the index’s outperformance, despite having a relatively smaller weight compared to other sectors.
Energy and Utilities were the only sectors that decreased substantially during Q1, but the impact was limited by their small weight.
MENA Equities Post Mixed Results in Q1 2023
MENA equities experienced mixed results in Q1, with the regional S&P Pan Arab Composite was down 0.5%. GCC country performance was also mixed, with positive returns for Oman (5.0%), Bahrain (4.9%) and Saudi Arabia (1.6%), and losses in the UAE (-5.2%), Kuwait (-3.5%) and Qatar (-1%).
For more information on how Shariah-compliant benchmarks performed in Q1 2023, read our latest Shariah Scorecard https://www.spglobal.com/spdji/en/documents/performance-reports/scorecard-sp-shariah-djim.pdf
This article was first published in IFN Volume 20 Issue 15 dated April 12, 2023.
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