Islamic Equity Monthly Report | October

21 October 2022

Key Takeaways

Vladimir Putin continues to take actions that solidify the Western alliance opposing Russia, be it through sabotaging gas pipelines, illegally annexing portions of Ukraine or the repeated evidence of Russian war crimes as Ukraine retakes formerly occupied territory. While Ukraine’s military success is to be congratulated, Putin’s increasingly erratic behavior, combined with Ukraine’s apparent conventional military superiority raises the risk of an unconventional Russian response. Crossing the nuclear threshold brings the risk of NATO involvement. [1]

With stock markets roundtripping their early-summer rally to finish the quarter at year-to-date lows, it may appear valuations have become attractive. Valuation, however, requires two variables: price and earnings. We believe the latter to be at significant risk over coming quarters as rising interest rates boost the likelihood of an economic downturn, while the strengthening US dollar implies lower earnings for US-domiciled companies doing business internationally. Meanwhile costs simultaneously rise over and above previous inflationary levels for commodity dependent non-US companies. [2]

In September the Saturna Al Kawthar Global Focused Equity UCITS ETF fell -8.01% as measured in US dollars. The performance was in line with Islamic and conventional global indices, with the strengthening US dollar accounting for a good portion of the decline given the global investment mandate. We have seen an improvement in performance relative to Islamic benchmarks as the Energy juggernaut has lost momentum following the first quarter. Whether that continues to be the case after OPEC’s announcement of future production cuts remains to be seen, although recession, which now appears to be the consensus view, generally leads to lower prices. [3]


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

When the US Federal Reserve hiked rates by 75 basis points in mid-June stock markets embarked on a counter-intuitive rally fueled by the belief that such aggressive action would surely slay the inflation dragon, removing the need for further aggressive tightening.[4] Punters appeared to have forgotten the interest rate pain Paul Volcker was required to inflict following the milquetoast approach adopted by Chairmen Burns and Miller during the 1970’s.[5] Jerome Powell has not, and in Mid-August, gave a speech disabusing investors of any notion the Fed will call an early truce in its war against inflation.[6] Markets promptly rolled over and, in many cases, finished the quarter below the lows set in June. As always, knowing when to pause presents the greatest challenge for the Fed given its blunt tool kit. A dramatically strengthening US dollar raises the challenge as central banks around the world increase their policy rates to protect currencies against further devaluation, which could exacerbate their inflation rate, while creating repayment challenges for those who have borrowed in dollars.[7] In such circumstances markets often react more aggressively in lesser developed countries that lack the financial or institutional strength of developed nations. The experience in the UK following the policy announcements of PM Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng, perhaps indicate the bond vigilantes have looked closely at the deterioration of national finances during the pandemic and may not be willing to overlook unsustainable policies, even among the G7. [8]


AMAL Performance Table (As of 31.08.2022)








Saturna Al-Kawthar Global Focused Equity UCITS ETF







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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