Diversification of Islamic Financial Insturments

2.4.2 ISLAMIC EQUITIES AND FUNDS

While Sukuk hold their uniqueness, and considered as alternative instruments in the global

markets, the Shariah compliant equities operate as a subset of the broader global stock

markets. Securities listed on stock markets which comply with Shariah principles and pre-

defined Shariah screening criteria are considered as Islamic Equities and forms the

composition of all Shariah compliant mutual funds. Being a subset of the global equity markets

results in Islamic equities and funds being affected by the volatilities and pricing movements in

global stock markets.

The Shariah screening criteria tends to reduce the number of available stocks to Shariah

compliant investors, as compared to their conventional counterparts. Nevertheless, in recent

years it appears that Shariah-compliant equity indices have outperformed their larger

conventional peers, largely due to their different sectorial composition.

Figure 6. Global Breakdown of Islamic Fund Assets by Domicile (2016)

Source: IFSB, Bloomberg and Zawya

The availability of a universe of Islamic equity listings/indices has led to enabling the

development of Islamic funds industry to offering innovative funds to Shariah conscious

investors. The number of funds over the years has grown steadily from around 800 in 2008 to

over 1200 funds this year globally. The global markets downturn coupled with emerging

market currency depreciations (particularly impacting domestically invested funds in Malaysia

and Indonesia) in 2015, has had an adverse impact on the net asset values of the Islamic funds

in US Dollar terms. At the end of 2016, the Assets under Management industry’s Shariah

compliant funds was estimated to be $ 74 billion

as compared $76 billion in 2014. The steady

increase in the number of funds while a slight drop in the asset size has led to a decrease in

10 Author’s calculations using data from multiple sources. (Zawya, Bloomberg, IFSB)

Saudi Arabia; 40%

Malaysia; 28%

Jersey; 8%

United States; 7%

Luxembourg; 4%

Kuwait; 2%

South

Africa;

Indonesia

; 2%

Pakistan; 2%

Others;

1,38%

Cayman Islands;

Singapore; 1%

Ireland; 1%

UAE; 0,62%