LONDON, 6 February 2006 — The competition for benchmark Islamic equity indexes gets a welcome boost later this month when the umbrella FTSE-SGX Shariah Index Series is launched in Singapore with the inaugural FTSE-SGX Asia Shariah 100 Index. This follows the launch in Turkey rival group of the Dow Jones DJIM Turkey Exchange Traded Fund in Istanbul in January 2006 based on the Dow Jones Islamic Market (DJIM) Turkey Index, the first such equity index in Turkey and the Middle East.
In September 2005, New York-based Dow Jones Indexes licensed its newly-established DJIM Turkey Index to Family Finance House (FFH), one of the five Turkish interest-free financial institutions, as the underlying index for an exchange-traded fund (EFT). According to Dow Jones Indexes, The DJIM Turkey Index is the first such index that will be used as the underlying index for an ETF any where in the world. ETF’s are new to the Islamic investment funds industry and will take some time to filter through, given the conservative nature of fund promoters and investors.
“Licensing the DJIM Turkey Index as the underlying for an ETF”, stresses Lars Hamich, managing director of STOXX Ltd., which is responsible for Dow Jones Indexes’ business development in Europe, Asia and the Middle East, “will give Islamic investors access to the performance of the Turkish market, which presents a well-developed corporate landscape among emerging countries.”
The Istanbul Stock Exchange is arguably the most well-established bourse in the region. However, Islamic investment funds, especially equities, have been slow to take off given the conservative corporate cultures and the relatively modest capital of Turkish Islamic banks. The DJIM Turkey ETF is the first Islamic equity fund of any kind to be launched in Turkey. Commerzbank together with Al-Tawfeek Company for Investment Funds did launch the Al-Sukoor European Fund, which was marketed in turkey and to Turkish expatriates in Germany and the Benelux countries. Kuveyt Turk Evkaf Finance House, owned by Kuwait Finance House, has launched an Islamic property fund, but like its parent has shied away from equities.
Islamic bankers in Turkey in the past have always blamed this lethargy on barriers to entry for Islamic banks and the lack of requisite regulations. However, since the financial crisis in Turkey in the early 2000s and the subsequent reform of the sector which saw the interest-free Special Finance Houses come under the direct regulation of the banking act and the banking regulation and supervision board of Turkey, such excuses are no longer valid.
The Jeddah-based Islamic Development Bank and conventional banks such as HSBC, ABN Amro, Citigroup, West LB have long been the drivers of Islamic banking in Turkey financing Turkish infrastructure such as the expansion to the Ataturk International Airport; import of vital commodities such as oil and gas; and corporates to the tune of millions of dollars. A phenomenon which is conveniently often ignored by those sections of the secular media.
With a population of over 60 million and a growing middle class, Turkey is ripe for Islamic investment funds and products such as Takaful (Islamic insurance). Ironically these innovations have hitherto been hampered both by inadequate government regulations and the conservatism of both Islamic banks and their investors. Some Islamic bankers, for instance, still believe that insurance is forbidden in Islam. Yet they would not shirk from taking export credit cover for the transactions of their corporate clients.
The DJIM Turkey Exchange Traded Fund, though modest with only TL10 million under investment, is from a market psychology point of view an important start. The stock component of the index comprises 15 major Turkish corporates including Petkim (the petrochemical giant); Arcelik; Turk Otomobil; Ulker; and some of the largest cement companies in the region.
