The power wielded by Islamic investors in capital markets around the world and the influence of Gulf wealth continues to be underestimated and misunderstood, said Saturna Capital Portfolio Manager and Senior Investment Analyst Patrick Drum.
Speaking at the IFN Investor Middle East Forum 2025, Patrick said market participants may try to approach the Islamic investment world as they would other assets, but are tripped by perceived risks and anticipation of market behavior.
The relatively little information on cross-asset correlation has kept the massive potential of Shariah instruments, aside from the popular Sukuk, under wraps.
“There’s a lot of robust information (that) we don’t know really; there’s very little literature as to what are the investment characteristics (are)” for these markets.
Drawing on a decade-long experience in the Middle East, Patrick observed that market participants tend to “overprice risks associated with conflicts in geopolitical risk, yet underestimate really where the risks are really”.
To illustrate, he pointed to the week after the Hamas attack on Israel that sparked the 2023 Gaza war and rocked the Tel Aviv Stock Exchange. In comparison, the six GCC countries experienced little market disruption despite their proximity to the fighting zone.
| Assessing Geopolitical Risks on Markets: Political versus Conflicts | ||||||||
| Change in Financial Markets: 7-Business Days after Event | ||||||||
| Country | Event | Event Date | Stock | Market | 2-yr Yield | 10-yr Yield | FX v USD | CDS* |
| United States | Presidential Election | Tuesday, November 5th | S&P 500 Index | 4.75% | 4.32% | 3.34% | 2.06% | -23.85% |
| France | French Elections | Sunday, June 9th | CAC Index | -6.23% | -3.46% | 0.87% | -0.91% | 69.32% |
| Germany | French Elections | Sunday, June 9th | DAX Index | -2.99% | -10.48% | -9.89% | -0.91% | 42.89% |
| Mexico | Presidential Election | Sunday, June 2nd | MEXBOL Index | 1.53% | 2.19% | 1.52% | -8.09% | 16.02% |
| India | Presidential Election | Tuesday, June 4th | NIFTY Index | 3.26% | -0.17% | 0.33% | -0.13% | 1.23% |
| South Africa | General Election | Sunday, June 2, 2024 | TOP40 Index | -0.95% | -3.65% | -2.73% | 1.03% | -6.29% |
| Isreal | Hamas led surprise attack on Israel | Saturday , October 7, 2023 | TA-35 Index | -7.55% | -9.34% | -3.16% | -3.93% | 182.17% |
| Saudi Arabia | Hamas led surprise attack on Israel | Saturday , October 7, 2023 | SASEIDX Index | -1.33% | 1.04% | 1.05% | 0.00% | 21.11% |
| UK | Liz Truss unveiled ‘Mini-Budget’ | Friday, Sept. 23, 2022 | UKX Index | -1.78% | 6.79% | 6.92% | -8.90% | 31.62% |
| *The values in the column represent the cost of insurance against the default of each of the sovereign issuers listed in the above table. | ||||||||
| Source: Saturna Capital | ||||||||
“The GCC region has greater stability than most anticipate,” Patrick said, referring to an economically resilient area of more than 55 million people, where some 30 million are expatriates.
He cited other positives such as favorable yield spreads, low debt metrics, credit ratings pegged to the dollar, combined sovereign wealth funds worth about US$4 trillion, along with other large financial resources, and massive hydrocarbon reserves led by oil.
While the price of Brent crude oil itself fell to the US$70-per-barrel territory two months after the start of the Gaza war – from a high of nearly US$140 during the 2022 Russia-Ukraine war – Patrick viewed that as a result of demand issues rather than any particular weakness with the Gulf economies.
Still, the scant understanding and appreciation most investors have for Islamic assets and Gulf wealth are evident in the numbers.
As of 2022, Patrick noted total Islamic assets stood at just about US$4.5 trillion from a global asset base estimated at US$200 trillion by the Boston Consulting Group. Nearly a fifth, about 18%, of the Islamic assets were in Sukuk.
That figure does not correlate well relative to the global Muslim population, which surpassed the two billion mark in 2023, Patrick observed. “Islamic investing represents the most under-invested community,” he said, projecting that assets in the Islamic space could reach US$7.6 trillion by 2027 once more become aware how the Islamic asset class performance was already comparable to global peers.
| Correlation Matrix: 3-years (December 31, 2021 – December 31, 2024) | |||||||
| Asset Class | Crude Oil (WTI) | FTSE Sukuk | Bloomberg US Aggregate | JPMorgan EMBI Global Core | MSCI ACWI | S&P 500 | |
| Crude Oil (WTI) | 1.000 | -0.121 | -0.151 | -0.118 | 0.105 | 0.107 | |
| FTSE Sukuk IdealRatings | -0.121 | 1.000 | 0.849 | 0.778 | 0.458 | 0.399 | |
| Bloomberg US Aggregate | -0.151 | 0.849 | 1.000 | 0.713 | 0.433 | 0.379 | |
| JPMorgan EMBI Global Core | -0.118 | 0.778 | 0.713 | 1.000 | 0.690 | 0.599 | |
| MSCI ACWI Index | 0.105 | 0.458 | 0.433 | 0.690 | 1.000 | 0.964 | |
| S&P 500 | 0.107 | 0.399 | 0.379 | 0.599 | 0.964 | 1.000 | |
| Source: Saturna Capital | |||||||
This projection was backed by a three-year correlation matrix data by Saturna Capital, drawing a comparison between the FTSE Sukuk Ideal Ratings Index to other major indices and also against US crude oil between 2021 and 2024.
