The return of the bull stock markets globally at the end of August could not offset the sharp slump from the beginning of the month. This summer?s rollercoaster trading action mirrored a chain of multiple events with major economic impacts, such as civil wars in the Arab world or the downgrade of the United States.

A closer look at the performances of the Dow Jones Islamic Market Indexes (DJIM) reveals some interesting trade-offs and developments.

Firstly, while oil prices dived almost 7% during August, the Dow Jones Islamic Market indexes in the Gulf Arab region performed less bearish than the majority of the DJIM indexes.

The Dow Jones Islamic Market GCC Index, which measures the performance of Shari?ah-compliant stocks in Kuwait, Saudi Arabia,Bahrain, Qatar, the United Arab Emirates and Oman, closed 2.47% lower at 1,118.95 points.

The Dow Jones Dubai Financial Market (DFM) Titans 10 Index ended down 1.45% at 2,000.37 points. These figures stand in stark contrast to the Dow Jones Islamic Market Oil and Gas Index which ended off 10.48% at 3,562.29 points, as the worst performer among the DJIM sector indexes.

Secondly, the principles of Islamic banking showed their potential to set new standards for the conventional world. With a drop of only 1.08%, the Dow Jones Islamic Market Financials Index was the ?best? performing composite among the DJIM sector indexes. It?s important to note that several financial practices are banned in the Shariah-compliant financial world:

Islamic banks are not allowed to deal with conventional bonds, thus they do not carry any bonds of bailed-out countries such as Greece, Ireland and Portugal. This shelved Islamic financial institutions a bit from the market panic in early August.

Short-selling is also prohibited. This ban was actually recently adopted by stock markets in Spain, France, Italy, Greece and Belgium, in order to prevent speculators and hedge funds from pushing equity indexes down further. According to Dr. Nasser Saidi, Chief Economist of the Dubai International Financial Centre (DIFC) Authority and Head of External Relations of the DIFC Western countries are more and more examining Islamic Finance principles, as more and more conventional trading strategies are regarded as harmful for financial market stability, short-selling being one of them.

The revival of Islamic bonds or sukuk is the third noteworthy observation. During this rollercoaster-August, the Dow Jones Citigroup Sukuk Index gained 0.43% to reach 132.19 points. This composite was only topped by the Dow Jones Islamic Market Sri Lanka Index, which advanced by 1% to close at 2,415.61 points. Recent announcements support the appetite for sukuk.

The Dubai-based real estate developer Nakheel is on track to issue a US$1.63 billion sukuk, and Al Hilal Bank in Abu Dhabi said it will issue a 5-year Islamic Bonds worth US$500 million.

However, not all Dow Jones Islamic Market Indexes could escape last month's turmoil. The Dow Jones Islamic Market Pakistan

Index and the Dow Jones Islamic Market Turkey Index both hit the bottom of the charts by falling over 11%, closing at 14,102.51 points and 3,040.92 points, respectively. As a direct comparison, the conventional bellwether Dow Jones Industrial Average in New York lost 4.36%, closing at 11,613.53 points.

The summer of 2011 had all the ingredients of a challenging time: wars, earthquakes, downgrades and profit warnings. However, the relief rally which started at the end of August proofed that, despite all ups and downs, stock markets are liquid and that they are functioning.

History repeats itself said DFSA CEO Paul M. Koster, ?Markets always come back.? Nevertheless, some influential factors,such as risk aversion in the Eurozone countries, high sovereign debt ratios in the developed world and the transformation of long-term emerging markets into industrial states, will still have an effect on the market. 

Source : Global Islamic Finance