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Many of the world’s central banks were quite active in the financial markets during the month of November. But while worldwide markets cheered November 30’s move by a group of central banks to cut the rate it charges the European Central Bank (ECB) for short-term dollar loans, the reaction to Middle Eastern intervention was not as well received. The United Arab Emirates (UAE) central bank’s attempt in November to provide market liquidity via purchases of US Treasury notes didn’t help The Dow Jones Islamic Market Basic Materials Index, which plunged 4.27% for the month, rekindling regional fears of a 2012 economic recession.
The Shari’ah-compliant Dow Jones DFM (Dubai Financial Market) Titans Index closed down 1.87% for November, while the Dow Jones Islamic Market (DJIM) Oil & Gas index’s decline of half-of-1% was the best performing industry composite of the month.
DJIM Indexes measure the performance of listed firms complying with Shari’ah principles, which denies investment in alcohol, tobacco, weapons, adult entertainment, interest-bearing financial products and those entities with a debt ratio exceeding a third of the firm’s market capitalization.
Despite the wave of buying triggered by the November 30 rate cut for the ECB, Emirates NBD in Dubai advised clients to retain “a high cash position” as long as France, Germany and the ECB differ on how to tackle the crisis. Also on November 2011’s final day, China’s central bank eased monetary policy for the first time in three years. That, however, did not prevent the DJIM China Offshore Index from finishing the month sharply lower, down 9.54%.
Although the danger that the Eurozone will break apart is still present, the six oil-rich Arab countries of the Gulf Co-operation Council (GCC) have no intention of abandoning their project to create a common currency, the “Kahleeji”. “We are working on it,” Bahrain’s Central Bank governor Rasheed Al Maraj said.
As 2011 progressed, the competition between Bahrain and the UAE for the title of the Middle East’s leading center for Islamic finance took a notable turn. “Arab spring” riots in Manama prompted some banks to leave the Bahraini capital and shift operations to Dubai. The UAE, which will celebrate its 40th anniversary on December 2, has managed to sustain political stability and economic openness.
November marked the first time in 2011 that the DJIM U.S. Titans 50 Index was among the top three gaining DJIM benchmarks, closing up 1.29%. This gauge was topped only by the DJIM Thailand Index, which rose 2%. By comparison, the US bellwether Dow Jones Industrial Average posted a November gain of 0.76%.
Finally, an encouraging sign for Islamic finance emerged from Ernst and Young’s World Islamic Banking Competitiveness Report, which indicated the industry’s assets will exceed $1.1 trillion by the end of 2012, up by a third compared to their 2010 levels.
