Shariah Compliant Stocks in Saudi Arabia

What are Shariah Compliant Stocks?

Shariah Compliant stocks are ones which are complying with the Shariah standards set up by the Shariah Scholars. If a stock passes the set Shariah screening criteria is known as Shariah Compliant stock. Shariah Guidelines for Trading and Investment in Stocks The first question arises in our mind whether the stocks listed on stock exchanges are allowed for trading in Islam?

The Answer is Yes!

Any stock listed on any stock exchange is allowed for trading if the stock complies with the Shariah principles set out by Renowned Shariah Scholars. The second question arises what are the guidelines and principles for Investments in accordance with Islam. Islam prohibits interest, sales of alcohol, sales of pork, conventional banking & Insurance and other activities contradicting Shariah Law.

In the current scenario, finding companies that are not involved in activities prohibited by Islam for investments is almost impossible. Thus Shariah scholars have set up a few norms and standards to screen stocks for purposes.

What is Shariah Screening?

Shariah screening is a process of screening stocks in accordance with the Shariah screening criteria developed by Shariah scholars.

Any stock dealing with prohibited activities by Islam is out of Shariah Compliant investments.

To view a detailed Shariah equity screening criteria please see this: Islamicly Shariah Screening Criteria

How many Halal Stocks are there in Saudi Arabia?

Tadawul, astock exchange in Saudi Arabia is also called as a Saudi Stock exchange. Under Tadawul 274 companies have registered to trade their company stocks. There are around 13 components/sector/industry (Banks & Financial Services, Petrochemical Industries, Cement, Retail, Energy & Utilities, Agriculture & Food Industries, Telecommunication & Information Technology, Insurance, Multi-Investment, Industrial Investment, Building & Construction, Real estate and property development, Transport, Media and Publishing and Hotel & Tourism) where an individual can invest in any of his interest.

As per Islamicly data as on 12th July 2023, 86% of Saudi stocks on capital markets are found to be Shariah-compliant. Thus, the Saudi capital market offers more than 236 halal stocks.

This number gives an excellent opportunity for Muslim investors to provide a decent pool of stock options to trade. Please check the graph below.

Shariah Compliant Equities in Saudi Arabia– (Hover to view more details)

Source: Islamicly Platform, July 2023

List of Halal Stocks in Saudi Arabia based on Market Capitalization

Shariah Compliance of various business sectors in Saudi Arabia.

Listed Companies in the USA can be classified into 13 business sectors, broadly. Sector wise Shariah compliance of companies listed in the Saudi Arabia can be seen below:

Shariah Compliant Stocks in Saudi Arabia- Sector Wise

Source: Islamicly Platform, July 2023

How can I do Halal investing as a beginner?

Before starting to invest in any stocks, bonds, or on any financial institutes one should check the financial performance of that organization/Institute of at least 3 years, debts, dividend, and profit shares. If you are looking for Shariah-compliant investments or halal investment then you need to check whether the company has been screened for Shariah compliance.

Investing in Shariah-compliant stocks or buying bonds is comparatively having high risk, as well as the ROI on those investments, are also too high than conservative stocks.

Benefits of investing in Halal stocks:

All the investments in stocks or bonds made according to Islamic principles get more benefits for both Muslims and non-Muslims. Islamic investment or Halal investments reinforce a systematic investment process that encourages high security, researched and monitored investments. Generally, the low debt requirements of Islamic screens facilitate a conservative approach that appeals to risk-averse investors.

Halal investments won’t encourage short term speculation and few of the Islamic scholars explains that frequent trading of high portfolio stocks might be a type of gambling which is Haram or against Shariah law. Trading in a low frequency reduces the expenses which include brokerage, taxes and other taxable capital gains.

Limiting venture decisions to a littler universe implies that a halal portfolio may not be as enhanced as different portfolios, which may expand the danger of misfortune. The profits from different market divisions’ rise and fall at various occasions. Islamic standards may restrict chances to pick up when denied advertise segments, for example, monetary administrations, and rally.

Since Islamic principles retrain the use of interest-bearing investments, halal cash reserves cannot be deposited in conventional money market funds or invested in an interest-earning bank account and hence do not earn income.

Performance of Shariah-compliant stocks vs Non-Shariah-compliant stocks of Saudi Market

In the region of Saudi Arabia, the demand for shariah-compliant stocks is growing vastly than non-compliant or conventional stocks. The Shariah-compliant index tracks all the companies that are abiding by Shariah compliance principles and should pass the litmus test to qualify themselves as a shariah-compliant company from the Shariah screening authorities and Islamic scholars who screens the companies financial ratios and industries.

Investors in Saudi Arabia and other parts of GCC countries are concerned and ready to invest in Shariah-compliant companies and stocks than conventional stocks and non-shariah compliant companies to safeguard their money as well as to get the best return on their investments.

With regard to the comparison between the conventional and Islamic stock markets in terms of efficiency, we note that the weak efficiency hypothesis is well verified in the Islamic context that in the conventional context. So we can conclude that Shariah stock markets are relatively more efficient in terms of informational efficiency than their conventional counterparts. Moreover, due to the existence of deteriorating changes in the time-varying predictability index of all Islamic stock markets in times of financial crisis, we can conclude that Shariah screened markets are not fully immunized against effects of the financial crisis and the strong financial delicacies.

indices outperforming their conventional competitors in terms of informational efficiency while others are less effective in terms of volatility level. As demonstrated that Islamic stock markets are vulnerable to the global financial crisis and ensure the stability of Islamic stock markets during economic and financial uncertainty periods.

Our practical results point out that the general belief that Islamic financial markets are immune from the negative impact of financial shocks because of its nature without interest flawed. For which it is important that stakeholders, policymakers and even academics and Sharia’s researchers must work together to endow Islamic financial markets with appropriate techniques and tools in order to mitigate the impact of financial shocks on Islamic markets.

How do you find Shariah Compliant Stocks for Saudi Market?

It is not that easy to find the stocks which are compliant to shariah protocols. To enable the Islamic investors to invest in the stocks which are Shariah market, we have come up with an app/mobile application “Islamicly” where people around the world will be able to check the status of the market in their respective markets as well as the shariah compliance stocks. Also, the app allows them to create their own portfolio where they can add their stocks to have a quick look at their performance. Islamicly app helps the investors/customers in reducing there valuable time on searching the shariah-compliant stocks in Saudi Arabia.

If you are an investor or wish to take an active part in investing in Shariah-compliant stocks, our Islamicly app will help you in finding the best match for you in your market/country.