Dow Jones Islamic Markets in October 2010: Facts, Trends, Rumors

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As has been the case many times in 2010, the land at the Bosporus and the ‘empire of the middle’ led the pack: The DJIM Turkey Index was up 12.83% at 4,254.92. The DJIM China Offshore Index (gaining 10.37% at 3,458.10) was also among the top five performing DJIM composites on a year-to-date basis.

“Net monthly flows to Emerging Markets equity funds have increased constantly,” says Dr. Masood Ahmed, Director of the International Monetary Fund’s Middle East and Central Asia, “reaching more than US$13 billion in September,” the highest monthly volume in three years.

But there is one exception at the top: the DJIM Sri Lanka Index, which advanced 33% since January 1st 2010, was hit by profit taking in October. This composite was the only DJIM Index in the red, plummeting a significant 7.63% to close at 2,222.65 points.

Although not taking a lead as a secular state, Turkey is actively developing its Islamic banking industry. Kuveyt-Türk Participation Bank from Istanbul, which operates 100% in line with Islamic law, was the first Islamic financial institution to open a retail banking branch in Germany this past spring. There are something like 1.7 million Turkish nationals residing in that country and over a million other Muslims live there as well (making up 4% of a total population of 82m).

Increasing tensions on the Korean peninsula weighed on the Seoul Stock Exchange. The DJIM South Korea Index to rise only modestly (up 1.72% at 903.67) while the conventional Dow Jones world indexes saw gains last month. The US bellwether index, the Dow Jones Industrial Average, which measures the performance of 30 US blue chips, added 3.49% to finish at 11,164.05.

At the sector indexes, the DJIM Basic Materials Index posted the largest gain, closing 6.69% higher at 2,831.90, while the DJIM Utilities Index added only 1.07%. Basic materials include the mining and refining of metals, chemical producers and forestry products. Firms producing and trading the aforementioned goods usually have an overweight in Islamic indexes, because companies producing alcohol, weapons, pork products and pornography, along with all conventional banks and insurers, are excluded from the Shari’ah -universe.

On October 19th, Dow Jones Indexes and Dubai Gold & Commodities Exchange (DGCX) entered into a licensing agreement pursuant to which DGCX aims to list futures contracts on Dow Jones-branded indexes. This includes the popular Dow Jones Islamic Market Titans 100 Index (up 4.85% in October, at 2,155.40).

“The relationship represents an exciting time for DGCX as it looks to expand its reach and product suite across the region and internationally,” said Eric Hasham, chief executive officer, DGCX. The top five weighted companies in the Dow Jones Islamic Market Titans 100 indexes are all corporate giants: Exxon Mobil Corp., Microsoft Corp., Johnson & Johnson, Procter & Gamble Co. and International Business Machines Corp (IBM).

At the DGCX, trading hits new highs in Indian rupee, Canadian dollar and Australian dollar futures – all on the same day. Total daily volume reached 15,350 contracts valued at US$786 million on October 19, the third highest ever.

Other Dubai markets are less successful. The securities exchanges in Dubai, the Dubai Financial Market and the Nasdaq Dubai, so far failed to attract new listings in 2010.  The dry period could be over soon as United Arab Emirates retailer Axiom Telecom plans to float 35% of its shares in an IPO at the Nasdaq Dubai at the end of this year.

At the beginning of October, rumors came up in the emirate of Dubai of a possible merger between the three Islamic banks Emirates Islamic Bank (EIB), Dubai and Noor Islamic Bank to form a single Islamic financial heavyweight. Rick Pudner, CEO of EIB’s mother company Emirates NBD, meanwhile denied such talks.

Nevertheless, consolidation will remain a hot topic at global financial markets. The global Islamic finance sector is highly fragmented and it will surely see more mergers and acquisitions in 2011.