The spotlight is fixed on the Middle East as the people rise up against governments and attack regimes that once seemed unassailable. The riots also will do nothing to advance the cause of Islamic finance at a time when it is struggling to find a niche for itself.
Despite a Hong Kong government push to develop Islamic finance - or so-called sukuk bonds - it has little to show for its efforts.
Islamic finance refers to bonds or other financial products that conform to Islamic religious law, or sharia, which in general does not allow Muslims to accept interest, gamble or speculate on the stock market or engage in short selling. They are also banned from investing in industries related to pork, tobacco, casinos or firearms.
Some observers may remember when Islamic finance was red hot in Hong Kong in 2007 when oil prices had surged to almost US$140 a barrel, and the sukuk market seemed to have a bright future.
In September 2007, Financial Secretary John Tsang Chun-wah said the government wanted to help Hong Kong lenders tap into the US$1 trillion Islamic bond market, which he expected to grow by 15 per cent annually.
The financial chief's call to arms was followed by numerous seminars and roadshows by the Hong Kong Monetary Authority, the Hong Kong Securities Institute and assorted banks all eager to jump on the bandwagon.
Chief Executive Donald Tsang Yam-kuen touched on Islamic finance in his 2007 policy address, and led delegates to the Middle East.
But it seems to have been 'all show and no dough'. Only Hang Seng Bank has launched an Islamic fund and no Islamic retail bonds have been offered.
The highly publicised problems of Dubai World, the Dubai government's investment holding company, did nothing to help the market and led some Hong Kong brokerage firms to cool towards the idea of expanding in the Middle East.
What is more, banks and brokers now have something more appealing and relevant than Islamic products to sell - yuan-denominated products, or 'dim sum' bonds.
Not long after the HKMA introduced measures to encourage companies to issue dim sum bonds in Hong Kong, there are already many products available.
Further relaxation of regulations governing yuan transfers in bank accounts in July last year encouraged the creation of many yuan funds, yuan insurance policies and other yuan investment products. This year is expected to bring yuan-denominated shares and yuan gold bar trading.
Investors want to invest in the products to exploit the yuan's steady rise, which has reached more than 20 per cent since 2004.
In contrast, few are interested in Islamic financial products, partly reflecting the fact that Hong Kong has relatively few Muslims and far more Buddhists and Christians who do not understand the rules of Islamic finance.
The Securities and Futures Commission emphasises that investors should invest in what they understand - which is why yuan products are hot sellers.
It is one thing for the government to call for more investment in Islamic financial products, but it is quite another to develop the pool of experts needed to make the market succeed. This is why Hong Kong is losing out to other Asian markets such as Kuala Lumpur, where the state religion is Islam and investors have no trouble understanding the concept behind sukuk bonds.
The upheaval in the Middle East is going to make it even more difficult to get investors from these areas to buy Islamic financial products in Hong Kong.
Fund managers said Middle East investors who want to put money in Hong Kong are more interested in mainland stocks or yuan-denominated products.
Since most people expect the yuan to continue rising against the US dollar, yuan products make more sense.
Hong Kong should heed the SFC's advice to investors - 'stick to what you know.' Hong Kong is unbeatable in its role as a stepping stone for investment on the mainland. As a conduit for Islamic finance, it looks decidedly shaky.Topics: Company Expansion Debt Financing