Former Fed chairman Alan Greenspan warned in a speech in the region recently that US economic growth had stalled and a quick recovery is unlikely. However this time around, while America is sneezing most economic observers agree that the rest of the world won’t be catching a major cold. There are also encouraging signs reinforcing the view that Islamic financial products and stocks are sounder in a crisis.

Some interesting developments which emphasise the fundamental business strengths of companies that meet Sharia requirements are revealed by the Dow Jones Islamic Market industry performance indices.

With a growing appetite for Sharia-compliant financial products, the indexes are providing Islamic – and increasingly conventional investors seeking sounder alternatives – with benchmarks as well as encouraging structured investment products tailored to the market.

By their very nature, stocks included in the Islamic indices are less risky in the current climate as they are subject to a series of screens to remove companies based on debt and interest income levels. In addition, in the past month most of the industry-specific Islamic indices have recovered their losses incurred earlier this year as fundamentals kick in.

Coupled with this, while the US may be entering a recession, the rest of the world looks set to keep on growing, albeit at a marginally lower rate. This is reflected in the Basic Materials index, which covers chemicals, paper, aluminium and steel. Similarly, the Oil and Gas index has firmly entered positive territory again.

Indication

There is little indication that demand for any of these asset classes is likely to fall by any significant amount outside the developed economies. The same can be said of the Industrials which include construction, engineering and transport – all sectors that will continue growing in the global economy. Also, with its underlying lack of exposure to the same woes that have afflicted the conventional sector, the Islamic Market Financial index is in firm positive territory.

It is for the same fundamental reasons that the Dow Jones/Citigroup index that tracks sukuk, or Islamic bonds, is in the black. In marked contrast to the debt-laden conventional sector, sukuks have been good for investors with their key advantage being the Islamic condition that all issues must have underlying physical collateral – in other words they are a true asset-backed security, not just paper. A further plus is that, so far, there has not been a single sukuk default.

All that is needed now are more market-makers and some active secondary trading in sukuk to give a further boost to what may soon become a $1 trillion market.

– The writer is a freelance analyst based in Dubai.