Shariah-compliant stocks underperformed the broader market in the Gulf Co-operation Council (GCC), US and Europe in the third quarter, according to the latest Shariah Scorecard published by Standard & Poor’s. This was due mainly to Islamic investors remaining on the sidelines while the financial sector rallied,

The S&P Global BMI Shariah Index returned 15.46% in the third quarter, as investors demonstrated renewed risk appetite for. The non-Shariah S&P Global BMI Index which has a higher weighting towards financials rose 18.67% over the same period.

Returns from the S&P GCC Composite Shariah Index — comprised of 165 Shariah-compliant equities listed in Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates — slowed by more than half to 11.55% from 27.65% in the second quarter.

The index marginally underperformed the S&P GCC Composite Index. This returned 12.82% over the third quarter.

"Islamic banks and other financial institutions operating according to Shariah principles are continuing to underpin the performance of the S&P GCC Composite Shariah Index,” noted Alka Banerjee, vice president, Standard & Poor’s index services “With limited exposure to financials outside of the Gulf, Shariah investors are now missing out on some of the upside as the global economy recovers,” he added

Index performance        Third quarter 2009 (%)    Year-to-date (%)    12-month (%)
S&P Global BMI Shariah           15.46                                  28.77                       2.06
S&P Global BMI                       18.67                                  31.70                       1.51
S&P Shariah 500                     12.75                                  17.93                      -3.34
S&P 500                                 15.61                                  19.26                      -6.91
S&P Europe 350 Shariah          16.69                                  22.79                        3.21
S&P Europe 350                      23.21                                  31.28                        2.60
S&P GCC Composite Shariah    11.55                                  32.51                       -23.41
S&P GCC Composite                12.82                                  29.47                       -21.95

Banerjee said Shariah indexes and Islamic investing remains a growth story, facilitating the launch of several Islamic funds, exchange traded funds (ETFs) and a new breed of Shariah-compliant structured products in the Middle East North Africa (MENA) region, London and New York in the third quarter.

S&P’s Global Benchmark Shariah Index Series covers 52 developed and emerging markets and 10 GICS (global industry classification standard) sectors. It is part of S&P’s family of Shariah-compliant indices.

S&P’s Shariah Indices are screened by Ratings Intelligence Partners, an independent Kuwait-based consulting company which collaborates with the S&P Index Committee to apply a set of independent and objective guidelines for the day-to-day maintenance of each Shariah index.