Sep 28 2010

Dow Jones Islamic Markets in September 2010: Dubai is back on track

Almost a year ago, the emirate of Dubai was written off the books by some media. When real estate developer Nakheel found itself unable to pay off a US$3.52 billion Islamic bond (Sukuk) in November 2009, the sheikhdom suddenly was declared a place where dreams had turned to dust. Only a last -minute US$10 billon credit guarantee from neighboring emirate Abu Dhabi saved Dubai from defaulting.

It might be too early to declare victory, but September 2010 definitely marks - at the very least - a much needed stabilization for Dubai. The Dow Jones Dubai Financial Market (DFM) Titans Index closed 18.24% higher at 2,285.64 (as of the close of trading of September 27th) as a new wave of optimism came up in the sheikhdom after the end of the holy month of Ramadan. On September 10, 2010 the state-owned Dubai World group agreed with its creditor banks to restructure debt of about US$25 billion.

In addition to this good news, on September 26, 2010, Dubai Islamic Bank, the emirate's largest bank operating on the basis of Islamic law (Shari'ah), pushed its share in Islamic home finance company Tamweel up from 20% to 57%. This move which was widely hailed as a sign of the revival of the shattered real estate market.

Furthermore, Dubai-based retail dealer Axiom Telecom announced that it would list shares on the Nasdaq Dubai at the end of 2010; the first IPO announcement in the emirate in 18 months. Despite the boost during September, however, on a year-to date basis, the Dow Jones DFM Titans 10 Index underperforms every index in the DJIM universe (down 5.88%).

On a monthly basis, Dubai was followed but the DJIM Sri Lanka Index (up 17.97% at 2,413.04) and the DJIM Philippines Index (gaining 17.59% at 1,819.17). Both indices performed lower than their conventional counterparts: The Dow Jones Sri Lanka Total Stock Market Index was up 26.51% while the Dow Jones Philippines Total Stock Market Index gained 21.97%.

No regional bias was seen last month, as the DJIM Malaysia (up 3.06% at 1,561.66) and the DJIM Pakistan Index (1.07% higher at 11,693.55) hit the bottom of the Shari'ah-compliant equity charts. In fact, all DJIM indexes gained value.

As a direct comparison, the West's bellwether composite Dow Jones Industrial Average in New York added 7.96% to close at 10,812.04. Slightly better data in relation to durable goods and growing mergers and acquisitions activity seemed to raise investors' risk appetite. According to Credit Suisse, the volume of M&A activity increased by 7% to US$1,230 billion during the first half of 2010. Latest deals announced include consumer giant Unilever, which will be buying its US rival Alberto Culver for US$3.7 billion in cash; and WalMart is ready to pay US$4 billion for the Massmart store chain in South Africa.

As of September 9, 2010, the Dow Jones Islamic Market World Index added 110 components, while 71 components have been deleted. That increases the number of components in the index to 2379, up from 2340. The top five components by free-float market capitalization that will be added to the index are: Xstrata PLC (United Kingdom, Basic Resources, XTA.LN), PetroChina Co. Ltd. (China, Oil & Gas, 0857.HK), Thomson Reuters Corp. (Canada, Media, TRI.T) RusHydro GDR (Russia, Utilities, HYDR.LN) and Human Genome Sciences Inc. (United States, Health Care, HGSI).

The DJIM sector indices all landed in the green as well. The DJIM Technology Index surged 11.62% to finish at 2,293.75. This was followed by the DJIM Industrials index, which climbed 11.44 up to reach 1,548.48 points. The latter composite achieved the highest gain (up 10.27%) since the start of 2010.

September's message was - to quote a much anticipated movie sequel coming out next month - that money never sleeps, whether invested in line with Shari'ah or conventionally. But uncertainties remain, mainly in the field of non-performing loans and about the sustainability of the increasingly visible global recovery.


By Gerard Al-Fil

© Press Release 2010

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