Islamic Equity Monthly Report | September

Key Takeaways

Central Bank commentary on macroeconomic factors, primarily inflation and interest rates, continued to drive equity market performance and the message was not what stock investors wanted to hear. At the US Federal Reserve’s annual Jackson Hole Economic Symposium, Chairman Powell disabused observers of the notion that the Fed was preparing to pull back on its rate hike strategy.[1] Pointing to the far greater risk of inflation expectations becoming anchored, requiring even more dramatic action, Powell made clear that the Fed will remain aggressive until it sees clear evidence inflation is not only diminishing but also fully under control. [2]

Meanwhile, European data showed accelerating inflation, largely due to soaring natural gas prices driven by Russia’s criminal invasion of Ukraine.[3] In the Eurozone August inflation rose to a record 9.1%, unlike the US, where inflation has decelerated largely due to falling oil prices. Nine countries registered double-digit inflation, while the Baltic states of Latvia and Lithuania saw prices rise over 20%. Overall energy prices rose at a debilitating 38.3% year-on-year. [4]

In August the Saturna Al Kawthar Global Focused Equity UCITS ETF declined -5.37%, trailing global Islamic Indices, primarily due to the absence of fossil fuel investments. Overall stock selection was positive, especially in Technology, which represents the ETF’s largest exposure. Only a handful of stocks managed a positive return, including US seed company Corteva, which rose over 10% as increasing climate disruption brings crop yields into focus. Motorola Solutions also managed a small gain on record second quarter sales and raised guidance. Chairman Powell’s interest rate comments were damaging to higher valued technology stocks and ASML was the weakest performer. European industrials exposed to energy prices also fared poorly with Schneider Electric and Assa Abloy each declining by double-digit percentages. [5]

Source of all data: Saturna Capital. Please note that all performance figures are showing net data. Past performance is not indicative of future performance

Macro Outlook

Given greater energy independence, a buoyant job market, and money still sloshing around from various COVID stimulus programs, the US Federal Reserve has more aggressively raised rates than the European Central Bank, which faces weaker economies hampered by the previously discussed energy travails, as well as stretched national balance sheets among certain members.[6] Stronger growth and higher rates have had the inevitable effect of driving the USD higher versus major currencies. The DXY dollar index stands at the highest level in the past 20 years, at rough parity with the euro and a remarkable ~$1.15 to the British Pound, while it takes around ¥140 to buy one USD.[7] Such an environment might generally be considered a boon for European/Japanese exporters with locally based costs. Unfortunately, for the Europeans, energy is mostly imported, and the soaring costs are diminishing any currency advantage.[8] In Japan the energy situation may be slightly better, but an ever-shrinking labor force hampers productive capacity.[9] What of the world’s largest exporter, China, which has also seen its currency sink against the USD? Drought has reduced electricity production leading to factory closures, while Chengdu in Sichuan Province has become the latest major city to face COVID lockdown.[10] For now, it appears the only exporters to benefit are those shipping out oil & gas. demographic, debt and decoupling challenges that are only exacerbated by installing a leader for life.

AMAL Performance Table (As of 31.08.2022)

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/08/2022. Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product.      

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