IN A period which bankers call one of the most "unstable periods in financial history", Datuk Noripah Kamso, chief executive officer of CIMB-Principal Sdn Bhd, said that one of the best bets to look at is in Islamic equity or sukuk investments.
"If we compare with the non-syariah, or conventional stocks, from a portfolio standpoint, there are basically four reasons why Islamic equities and sukuk can be an acceptable alternative," said Datuk Noripah, who added that on a long-term basis, it grants comparable risk return, and that syariah investments have been proven to be less volatile than conventional. (full story)
"Thirdly, on top of that, it has a quantitative overlay of risk management at the portfolio level, because of the financial screening that comes along with the syariah principle," she said.
The fourth, and final point, was that on top of the benefits of investing, the equities and sukuks are "wrapped with a social cause that makes it value-added".
She explained that syariah equities and sukuk investments are considered an 'asset based' transaction that shares risk and profit.
"On top of that there is also a risk overlay of risk ownership, so if you actually hold a sukuk, take note, that this is a beneficial ownership," she said, adding that it is not legal ownership.
"The sukuk proceeds are used for real economic activities that confers with social benefits," said Datuk Noripah.
Leiberton explained that the financial infrastructure of these two Islamic investment products has to do with developing nations, and they do avoid financing casinoes, breweries, and anything else that isn't syariah-compliant.
Datuk Noripah was recently in Brunei accompanied by Scott Leiberton, managing director of equities from Principal Global Investors, to talk about their interest in partnering with local Islamic finance institutions in Brunei. Leiberton added that by being syariah compliant investments, it means that the investments have less leverage and less debt, and it provides better resilience in the face of market volatility.
"As we've seen throughout the global financial crisis and many of the other 'Black Swan' events, over the last five years, syariah based portfolios have held up better in market down-time than conventional investments," said Leiberton. He added that over time, the ability to achieve comparable returns with less volatility actually makes them "quite compelling".
Datuk Noripah explained this further saying that some of the 'Black Swan' events include the volatile financial period over the last five years from 2006 onwards, which includes the inflationary prices of oil, the mortgage crisis in the United States, the recent Global Financial Crisis, leading to the Dubai property crisis, and covering right up to the Japan earthquake.
She added that the syariah portfolios was compared to the conventional Dow-Jones global index, which showed that at various levels of the Black Swan events, and since more of the syariah-compliant investments are balance sheet driven and no toxic assets are included in the portfolio, it performed reasonably better.
"It has shown to be outperforming, but we don't want to market syariah as a 'portfolio that outperforms conventional investments', we want to position syariah as it is 'comparable on a long-term basis'," said Datuk Noripah. The Brunei Times
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