Islamic stock funds in Sri Lanka, Thailand and Pakistan provided the biggest returns among global counterparts investing in Shariah-compliant securities as accelerating economic growth pushed shares higher.
Namal Amana Equity Fund, based in Sri Lanka, rose 71 percent in the last 12 months, beating all the other 299 funds tracked by Bloomberg. MFC Islamic Long Term Equity in Thailand increased 55 percent and Al-Meezan Mutual Fund of Pakistan gained 54 percent in the period.
Investor confidence is improving as Sri Lanka emerged from a 26-year civil war, Thailand prepared to lift a state of emergency in Bangkok and Pakistan’s government predicted the fastest pace of economic growth in three years. Sri Lanka and Thailand have yet to sell bonds that comply with the religion’s ban on interest, limiting investment options for Muslims in those countries.
“Sri Lankan stocks did very well as the climate was right for investment,” S. Jeyavarman, chief executive officer of National Asset Management Ltd., of which Namal Amana is a unit, said in an Aug. 3 interview from Colombo. “Investor interest will pick up as they see these kinds of returns.”
Namal Amana holds shares of Nestle Lanka Plc, a local unit of Switzerland’s Nestle SA, which rose 103 percent in the last 12 months, and tea processing company Tea Smallholders Factories Plc, which gained 89 percent, said Jeyavarman, who manages the equivalent of $60 million in Islamic and non-Islamic funds at National Asset.
Shariah law forbids gambling, payment of interest, smoking and alcohol, so fund managers have to select investments deemed as halal, or permissible. Companies and products are screened by a board of scholars to ensure they don’t violate religious principles. Namal Amana, MFC Islamic and Al-Meezan Mutual beat the average return of 36 percent among the top 20 funds.
The Dow Jones Islamic Market World Index, which tracks shares that meet Shariah guidelines and has a market capitalization of $12 trillion, climbed 11 percent in the past 12 months, the same as the Dow Jones Global Index. The Colombo All-Share Index reached a record high of 5,225.60 on Aug. 3, after more than doubling in the past year.
MFC Asset Management Plc’s Islamic fund beat the 35 percent gain in Thailand’s SET Index by avoiding banking stocks that generally don’t comply with the religion’s ban on interest, Supakorn Soontornkit, chief investment officer at the Bangkok- based company, said in an interview on Aug. 3.
Banking shares carry a 20 percent weighting in the SET Index, the second-biggest after energy and utilities, Bloomberg data show.
“Apart from Shariah-compliance, the main criteria for picking those stocks are strong earnings growth and high liquidity of the shares,” said Bangkok-based Supakorn, who oversees $7.5 billion at MFC Asset Management.
The fund holds Delta Electronics (Thailand) Pcl, Thai Union Frozen Products Pcl, PTT Chemical Pcl and Hemaraj Land & Development Pcl, according to the company’s website.
Thailand’s central bank expects the economy to expand 6.5 percent to 7.5 percent in 2010, the most in at least seven years, Assistant Governor Paiboon Kittisrikangwan said on July 23. That’s up from an earlier forecast of as much as 5.8 percent. Pakistan’s government estimates 4.5 percent growth for the fiscal year that started July 1, 2010, compared with 4.1 percent last year. Sri Lanka’s government is aiming for 7 percent, the fastest pace since 2006.
State-run Islamic Bank of Thailand plans to raise 5 billion baht ($155 million) in the nation’s first sale of sukuk, the Thai Securities & Exchange Commission said in a July 15 interview. Pakistan has 42 billion rupees ($491 million) of the notes outstanding, according to the central bank.
The HSBC/NASDAQ Dubai US Dollar Sukuk Index, made up of Islamic bonds from Indonesia to Saudi Arabia, rose 11 percent in the past year and dollar debt sold by developing nations gained 19 percent, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.
The spread between the average yield on emerging-market sukuk and the London interbank offered rate, has narrowed 54 basis points to 389 since the end of June, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. The difference reached this year’s low of 369 on April 15.
The yield on Malaysia’s 3.928 percent note due June 2015 dropped two basis points to 2.96 percent today, according to prices from Royal Bank of Scotland Group Plc. The rate has declined 88 basis points since the securities first traded on May 28, prices from HSBC Holdings Plc show.
The 54 percent return from Al-Meezan, a unit of Islamic Al- Meezan Investment Management Ltd., outpaced the Karachi Stock Exchange 100 Index’s 33 percent rally in the past year, according to data compiled by Bloomberg.
The fund holds shares of Oil & Gas Development Co., Pakistan’s fuel explorer, Muhammad Asad, Al-Meezan Asset’s chief investment officer, said in an Aug. 3 interview.
Shares of Oil & Gas rallied 67 percent.
“Our investment in energy and cement shares was just at the right time,” said Asad, who manages the equivalent of $210 million.