ThinkAdvisor ran a piece Wednesday morning on Banco do Brasil's (SA:BBAS3) latest offering: a Sharia-compliant stock fund. That’s right, Brazil -- a mostly Catholic country in South America -- is launching a stock fund that complies with Koranic prohibitions on the payment of interest and on pork products, among other restrictions. I contributed my thoughts on the subject to the article:
Regarding the tough slog that sharia-compliant investing has often had in the U.S., Charles Sizemore, a portfolio manager for online investing marketplace Covestor, said, “This tends to be a politically charged issue, particularly in the 13 years that have passed since the 9/11 attacks by Al Queda, But it really doesn’t need to be. It’s a marketing gimmick to differentiate an investment product from the competition in the eyes of strictly observant Muslim investors. And this is nothing new in the West.”
Sizemore said, “London competes with Dubai as the center of ‘Islamic finance’ despite being a Western Christian country on the northwestern fringe of Europe. Britain has gone so far as to announce its intent to launch sharia-compliant ‘sukuk’ bonds. And if you want to go really far back in time, during the days of the Caliphate Jewish and Christian merchants in the Middle East and Asia often engaged in Islamic contracts, even between each other, because of their universal enforceability in Muslim lands.” [See "The Long Divergence"]
It may seem a little weird for Western countries to adhere to Muslim financial regulation, but countries often have legitimate reasons for agreeing to foreign terms. Turning more broadly to emerging markets:
“[M]ore recently, emerging markets agree to ‘Western’ terms when raising capital because doing so reduces their borrowing costs, though this sometimes has unintended consequences. Consider the recent case of Argentina and its creditors duking it out in the U.S. court system rather than the Argentine court system. It may be distasteful to many Westerners, but if it lowers the cost of capital, it’s hard to argue against it too vigorously.”
Charles Lewis Sizemore, CFA, is the editor of Macro Trend Investor and chief investment officer of the investment firm Sizemore Capital Management.