Performance evaluation of Shariah Investments in South Africa

dc.contributor.authorSurtee, Taariq GH
dc.descriptionA thesis submitted in fulfilment of the requirement for the degree Doctor of Philosophy to the Faculty of Commerce, Law and Management, Wits Business School, University of the Witwatersrand, Johannesburg, 2022
dc.description.abstractShariah Investment Screening differs from country to country. Assumptions made in Shariah ruled countries might not apply in secular countries. Therefore, performance evaluation in one country cannot be used to make assumptions about another. The bulk of literature on this subject appears to focus mainly on Islamic ruled countries or countries with large Muslim populations. The literature focuses predominantly on equities as an asset class, while the literature on other asset classes is sparse and, when available, focuses on the class in isolation instead of presenting it as part of an investment portfolio. When considering these asset classes, there are explicit religious considerations that apply. Additionally, the obligations of giving alms and removing unavoidable interest income when evaluating performance must be considered. South Africa has a small Muslim community and a robust financial system where Islamic products are traded, yet little is known about the effect of these obligations on the performance of Shariah Investments. Access to Shariah-compliant products is increasing where Islamic Banking is established, while Islamic bonds and taxdeductible investment opportunities have recently been introduced. In addition, the literature is only starting to discuss cryptocurrencies as an investment class. Drawing on these areas of investment research, our research examines the various asset classes’ applicability for Shariah Investing in South Africa. This study considers Islamic theology and redefines Riba as more than interest or usury. Using the newly defined Riba, we placed Islamic Utility in economic theory as Utility that complies with Islamic advice. These definitions gave us a platform to evaluate current investments. We found that the current screening practice is too limited, and therefore, we improved on screening practices using our new definitions and applied customised Modern Portfolio Theory (MPT) algorithms to accommodate Islamic Utility. We used four risk-reward ratios (Sharpe, Sortino, Sterling and Treynor) to predict investment portfolios in MPT. Our improved screening method shows that investors may include other asset classes in their portfolios while maintaining Shariah compliance. The literature typically uses the Sterling and Treynor ratios to evaluate past performance and not in MPT. We argued that they should be used to predict portfolios. We, therefore, reinterpreted the two ratios and applied them in MPT algorithms. We showed that investors ii could earn significant gains by using these ratios under some conditions. We confirmed our findings with statistical inference and further refined when to use the different ratios solutions. The results are not as crucial since past success is no guarantee for future growth. As a measure of performance, we compared our results with current South African products. The best current products underperformed inflation once the compulsory alms were removed. We showed that we could indeed outperform the market and inflation, including removing the said alms. In this way, we proved our hypotheses and research questions, where we found that Shariah investing can be improved in South Africa. We concluded our empirical confirmation by testing the robustness of our simulations against the standard Capital Asset Pricing Model (CAPM). Both MPT and the CAPM predict results. However, both allow that the actual results may defer from predictions. We, therefore, tested the magnitude of differences between the two models and found that our predictions were more precise. In conclusion, our research introduced a more comprehensive understanding of Shariah investing with improved investment models that outperform the market.
dc.description.librarianTL (2023)
dc.facultyFaculty of Commerce, Law and Management
dc.rights.holderUniversity of the Witswatersrand, Johannesburg
dc.schoolWits Business School
dc.subjectShariah Investments
dc.subjectIslamic Science
dc.subjectIslamic Utility
dc.subjectPerformance evaluation
dc.subject.otherSDG-8: Decent work and economic growth
dc.titlePerformance evaluation of Shariah Investments in South Africa
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