SINGAPORE, 27 February 2006 — The launching last week of the FTSE-SGX Asia Shariah 100 Index by a quartet comprising Heng Swee Keat, managing director of the Monetary Authority of Singapore; Hsieh Fu Hua, CEO of Singapore Exchange Limited; Mark Makepiece, CEO of FTSE; and Majid Dawood, CEO of Yasaar Limited, marks an important new milestone in Islamic finance.
The index was conceived and developed in record time in less than six months, showing the commitment of all the three main parties. And this is the easy part, stressed one source. The next stage is to generate revenues off the index through as many licensing agreements; and later to structure products such as index-linked exchange traded funds based on the stock universe of the index.
“This launch of the FTSE-SGX Asia Shariah 100 Index marks an important innovation in the financial sector in Singapore. The Index will be the first pan-Asian Islamic equity index to be introduced in Asia. More importantly, the Singapore Exchange said that this is just the beginning. The exchange is working on introducing a series of Shariah-compliant indices covering a variety of markets,” said Swee Keat. “The launch of FTSE-SGX Asia Shariah 100 Index is most timely. The index can serve as benchmark for Shariah-compliant funds investing in Asian equities, and pave the way for creation of other index-linked products. I understand that the Singapore Exchange is working to create an exchange traded fund off the index. This would facilitate the growth of Shariah-compliant funds seeking Asian exposures.”
The index is a venture between the SGX, London-based FTSE International, part of the Financial Times Group, and Yasaar Limited, the UK-incorporated independent Shariah-compliance company for the financial services industry. The FTSE-SGX Asia Shariah 100 Index, according to FTSE’s Mark Makepiece, is fifty percent Japan weighted with the other half comprising stocks from Hong Kong, Singapore, Taiwan and South Korea — all of which have been screened for Shariah compliance by Yasaar Research, a subsidiary of Yasaar Limited.
Shariah compliance denotes screening of financial ratios of company, for instance debt to assets not totaling more than 33 percent, and the activities of the companies to ensure they do not engage in prohibited business such as breweries, pork production, gambling, pornography, and interest-based financial services — all of which are proscribed under Islam.
Stocks in the Index currently include Japan’s Toyota Motors and Secom; Singapore Telecom and Capital Land; Hong Kong’s China Mobile Cheung Kong Infrastructure Holdings; South Korea’s Samsung Electronics and Daewoo Shipbuilding & Marine Engineering; and Taiwan’s Formosa Petrochemical and Taiwan Semiconductor Manufacturing.
The index is free-float adjusted and calculated on a daily basis; and backtracked to Dec. 30, 2000. Its base value is 5,000. It will be reviewed on a quarterly basis. The three main super-sector weightings of the stock universe are technology, automobile and parts, and the industrial goods and services sectors.
The promoters of the index hope that it would generate investment opportunities well beyond index-linked funds. “While we at SGX look forward to launching products based on this index, its use extends beyond the world of listed products. After last week’s launch, any licensee can use the index to structure customized products for their clients. Whether exchange-traded or over the counter, this Pan-Asian index is designed to give Shariah-sensitive investors easy access into Asia,” said Fu Hua, CEO of SGX.
Dawood stressed that the index reflects a major and genuine commitment from Singapore to develop the island-state as an Islamic financial services hub “and is not intended as a short-term activity to take advantage of a liquid market (in the Gulf Cooperation Council states). This is a great opportunity for the Islamic finance and banking industry and for us to partner with global entities such as FTSE and SGX.”
