Obiyathulla Ismath Bacha (TMR Media Sdn Bhd, 2019)
If well-developed equity markets can contribute hugely to national growth, underdeveloped ones impose a huge cost on national competitiveness through higher required risk premiums and higher equity costs to firms. The high cost of equity has the added disadvantage of incentivising firms to leverage their capital structure with debt. Thus, the common phenomenon of developing countries with infantile stock markets and highly leveraged economies. Retarded stock markets offer perverse incentives, both to managers of firms and shareholders. So, how do the equity markets of the Islamic world stack up? To address this, we examined the performance of the Muslim world's top eight stock markets against two global benchmark indices, the MSCI World and the S&P 500. The annual performances of the main stock indexes of the eight stock markets were compared to that of the two benchmarks. The percentage annual returns and volatility over the 16-year period 20012016 was studied. With the exception of Malaysia, which had returns and volatility (standard deviation) very much in line with the benchmarks, the other markets showed interesting results.
