The Impact of U.S Monetary Policy and Macroeconomics Factors on Asia Emerging Islamic Stock Market During Covid-19

Abstract

Global Islamic fund assets, including the Islamic stock market, have rapidly developed from USD 22.6 billion in 2010 to USD 33.2 billion in 2017. This development is inseparable from the investor's confidence to invest in Islamic stocks, which have proven to be more resilient during the crisis (Rizvi 2015, Majid 2018) due to a low debt ratio compared to conventional stocks. According to Morgan Stanley Capital International (MSCI) screening criteria, Islamic stock market constituents are not allowed to have prohibited activities according to Islamic rules. Those activities involving riba (interest), gharar (uncertainty), maysir (gambling), and having more than 33% debt ratio of total assets. The different constituents between conventional and Islamic stock markets cause the two market indices not necessarily to have the same movements. This difference then raises a decoupling hypothesis that Islamic stocks can be used as diversification assets in portfolios (Usman et al. 2019).Asia is known as a region with the most developing countries and is the largest market for Islamic funds in the world. Asia Islamic fund capitalization fills 42.8% of the world's Islamic fund assets and has a Compounded Annual Growth Rate (CAGR) of 6% (Malaysia International Islamic Financial Center 2018). This large proportion results in integration between the Asia Islamic stock market and the world stock market, as reflected by the US Islamic stock market index (Caporale et al. 2019). As a developed country, the US has a strong influence on the world economy, including the Asia Islamic stock market. US monetary policy can be transmitted to the Asia Islamic stock market through exchange rate (Erdogan et al. 2020) and interest rate / Federal Fund Rate (FFR)