As the new coronavirus outbreak has already claimed hundreds of lives creating the fear of a global pandemic, some investors have taken advantage of the situation to invest in health-related companies in a move that could be summarized in one provoking sentence: “Where you see death, I see an opportunity.” But is it really that simple? MARC ROUSSOT explores.
Wuhan and 15 other cities are in lockdown. British Airways, Air France and Lufthansa have halted all their flights to China, while many other airlines have opted for a reduction as the World Health Organization (WHO) declared the new coronavirus a global health emergency.
The SARS (severe acute respiratory syndrome)-like disease is spreading. At least 426 people have died and over 20,500 have been infected in 24 countries, including China at the time of reporting. The rising death toll is dampening financial markets as fear of lasting negative impacts on the global economy lingers.
Meanwhile, “shares in Asian businesses that make rubber gloves and other surgical equipment have been boosted by the coronavirus outbreak as traders look to cash in on the epidemic”, the Financial Times reported.
The valuation of Top Glove, a leading manufacturer of disposable rubber gloves categorized as a Shariah compliant company by the Securities Commission Malaysia, increased by 21.28% over the past 36 days, for example.
On the 31st December 2019, when the WHO was alerted about the Wuhan virus, one Top Glove share was worth RM4.7 (US$1.14); on the 4th February 2020, it reached RM5.7 (US$1.39).
To Muhammad Zulfadzlie Zulkifli, the chief investment officer and senior director of UOB Islamic Asset Management, it all boils down to supply and demand.
“It is Economics 101 — you would not buy stocks of a company if there is no demand for its products. As demand grows for gloves because of the coronavirus, traders are going to take a position because it is their job to make profits. They are not wishing for the epidemic to get worse, it is just that they have a view that more gloves will be needed,” Muhammad explains.
Dr Mohamad Akram Laldin, the executive director of the International Shari’ah Research Academy for Islamic Finance, is of the same opinion: market forces are in action.
“I do not see any issue here. This is very much related to supply and demand. It happened that there is an epidemic which created the demand for certain goods. When the situation goes back to normal, then demand will decrease,” says Dr Mohamad.
Yet, with such a spike in Top Glove’s valuation over such a short period, one could reach the conclusion that stockbrokers and asset managers, conventional and Islamic alike, are capitalizing — if not speculating — on the spread of the virus and people getting sick or even dying. One could consider this practice unethical. Then, would it still be Shariah compliant to invest in a company like Top Glove given the current context?
To Maya Marissa Malek, CEO of Amanie Advisors, investing in companies producing surgical equipment or trading in the healthcare and pharmaceutical industry is permissible and Shariah compliant as long as the core business activities of these companies are Halal.
“There is no reason from a Shariah perspective to prevent stockbrokers and asset managers from investing in companies producing surgical equipment as nothing is Haram except what is prohibited by a sound and explicit ‘Nass’ [Arabic term for divine decree] from the Quran and Sunnah. As long as investing in companies producing surgical equipment does not contradict or violate the principles of Shariah and its key objectives known as Maqasid Shariah, there should not be any denigration or abuse to the Islamic values,” shares Maya.
“Even from the ethical point of view, investing in companies producing surgical equipment does not lead to the outbreak and spread of the disease; rather it results in prevention of the epidemic and protecting the lives of people which is one of the main objectives of Islam. Hence, investment in companies producing surgical equipment may not be considered non-compliant especially on the pretext that investors may capitalize on a virus outbreak with people getting sick and dying,” Maya adds.
Other Shariah scholars and Islamic finance experts are less definitive. For instance, Sohail Zubairi, a Shariah advisor and Islamic finance industry expert, questions trading practices.
“Stockbrokers are always trying to look for some or other opportunity to squeeze revenue without much attention to ethics. Principally, the daily active trading in the stock market is akin to gambling since the purpose is to get some quick bucks without making any real effort to earn such money. Most of the time, such investors lose the money which is exactly what happens in gambling and you know gambling is not Shariah compliant,” Sohail details.
For an investment not to be associated with gambling, investors should take a long-term position in order to earn dividends. Such investment would not be Haram as the investor will wait for the full cycle to end to get the dividend.
Dr Natalie Schoon, a senior consultant in Islamic finance, is also on the fence. “My initial view would be that the use of rubber gloves, etc, would be considered preventative, and therefore favorable to improvement of health or at least not getting sick. Hence, there is no reason why investing in those companies would be prohibited on the basis of what they produce and the increase in their demand. In other words, if the investment is made because it is a good business with strong future prospects, there is no obvious issue from a Shariah perspective,” she says.
“On the other hand, the conclusion drawn here is not far-fetched. The optics of investing in those companies at this point in time do not look good and create the impression of short-term speculative investments which is not appropriate,” Dr Natalie adds.