The common perception of Syaria equity investment is: safety and low risk. But is it true?
The fact is from 2001 – 2009, Syaria equity investment (which we use Jakarta Islamic Index/JII as proxy) 70% gave outperform return compared to the conventional one (Jakarta Composite Index/JCI). Only in 2004 and 2008 the JCI outperform JII. From the return point of view, JII seems attractive than JCI.
Annual Return
But how about the risk?
Annualized Std. Deviation
The daily return standard deviation (which is the return volatility) of JII is higher than JCI. This gave JII a double edge sword. When the market is bullish, JII tend to outperform JCI and when the market is bearish JII may fell bellow JCI.
Then we need to compute the risk adjusted return (RAR) to see if the risk in JII is worth taking or not. By dividing the annual return to the annual standard deviation, we came to a ratio that gives the information on how much return we get for each 1% risk we bear.
Risk Adjusted Return
From the data we have result that JII doesn’t have a good ratio compared to JCI. It’s only in 2001 and 2007 JII has the greater RAR compared to JCI. So what’s our conclusion?
Theoretically, the stocks in JII (which Syaria comply stocks) should have a better fundamental performance. This is due to the tight screening for one stock to be able to be classified as a Syaria comply stock. A stock is considered a Syaria comply when the interest bearing to total equity ratio is not greater than 82% and the interest revenue combined with other non-halal revenue is not greater than 10% of total revenue.
But still how can we judge the above data? A further comprehensive analysis need to be conducted.
One thing for sure, capital market is a supply – demand mechanism and many people trade based on rumors. If the fundamental theory is hold, when the JCI outperform JII, there’s an indication of bubble and abnormal trading activity. This can be seen on 2004 where JCI outperform JII, soon the next year (2005) the market move flat and consolidate until 2006. And 2008 is an exceptionally case where there’s a global capital market shock. What about 2010? From the data up to 19 March 2010, JCI has already outperformed JII about 3.33%. Is it a sign of bubble and abnormality trade? I think we can only guesstimate it.
P.S
Damn! Why I keep writing this!??
fakeconomist 