KUALA LUMPUR (Aug 15): Investors are advised to prioritise productive assets over speculative ones, amid limited availability of shariah-compliant hedging instruments, according to Bursa Malaysia.
Hedging instruments, such as forward and swap contracts, are used to mitigate financial risks associated with underlying assets. However, these tools are not permissible under shariah law for their speculative nature.
Bursa Malaysia Bhd (KL:BURSA) chairman Tan Sri Abdul Wahid Omar reminded investors about the “spirit, intention and purpose”.
“When we talk about investing, it is about growing value,” Abdul Wahid told the audience during a panel discussion at the Invest Shariah Conference 2024 on Thursday. “That’s why we always emphasise investing in assets that are more productive that generate returns over time.”
Bursa currently has regulated short selling that covers some stocks with shariah-compliant borrowings and lending structures.
The idea is to prevent over-speculation, Abdul Wahid said. He was responding to a question from the audience about the availability of shariah-compliant instruments for hedging stock market positions.
Cryptocurrencies, for example, are highly speculative assets that lack underlying value, he said.
The volatility of cryptocurrencies over a one-year period is 73%, compared to about 6% for bonds. That makes it an “outlier, indicating extreme speculation similar to gambling, as it is not backed by any substantive assets”, he flagged.
“How can we redeem something to be halal, admissible with something which can be so harmful,” he said in response to criticisms of Bursa for not implementing exchange traded funds for cryptocurrencies.
“[I advise] investing in real assets that are productive,” he added.