July 15, 2008 / 10:39 AM / 12 years ago

Islamic investors gain from bank stock ban -S&P

LONDON (Reuters) - Islamic equity investments produced positive returns through the past three months, protected by a ban on owning banking stocks even as leading stock indexes fell, index provider Standard & Poor’s (S&P) said.

Through ruling out exposure to Western banks, investments complying with shariah or Islamic law avoided the worst effects of the credit crunch, S&P said on Monday.

The S&P global shariah index returned 3.61 percent in the second quarter, while the equivalent world index fell by 1.49 percent.

Banking stocks have been hammered by the credit crunch and exposure to the U.S. mortgage market. But as Islamic law prohibits the paying of interest, shariah investors — most from Gulf states which are reaping the benefit of record oil prices — cannot hold such stocks and have therefore been immune.

“Financial stocks, whose poor performance has affected other indices, are largely excluded from shariah indices ... and shariah investors benefited from the screening,” S&P said in a statement.

Growing initially out of Malaysia, Islamic finance has boomed in importance with soaring interest from oil-rich Middle Eastern investors.

The Asian Development Bank estimates the total value of global assets held under Islamic finance principles — which also ban the holding of stocks in alcohol or pornography producers as well as conventional bonds — at $1 trillion and says the sector is growing at 10 to 15 percent a year.

But Islamic law does not rule out energy and oil stocks, which S&P said proved to be the best performing sector in their shariah-compliant index, rising almost 20 percent as oil hit new records.

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