SGX: Launching first index tracking Shariah-compliant Singapore listings

Mosque in Singapore’s Geylang neighbourhoodMosque in Singapore’s Geylang neighbourhood

Index provider FTSE Russell has launched the first Shariah-compliant index tracking companies listed on the Singapore Exchange, with the 48-constituent index able to be used to create investment products, SGX, Singapore Press Holdings and FTSE Russell said in a statement on Friday.

The offering, called the FTSE ST Singapore Shariah Index, is aimed at meeting growing investor demand for Shariah-compliant benchmarks, with the global Islamic banking and finance industry hitting more than US$2 trillion in total assets by the end of 2017, the statement said.

“Since FTSE Russell began calculating Shariah-compliant indexes over ten years ago, we have continued to see growing demand for appropriate benchmarking tools that can be used as the basis for Shariah-compliant investment products,” Jessie Pak, managing director for Asia at FTSE Russell, said in the statement.

Ng Kin Yee, head of market data and connectivity at SGX, also pointed to the growth in Islamic finance.

“The outlook for the global Islamic fund and wealth management sector continues to be positive, supported by an increasing range of Islamic financial instruments available to investors,” Ng said. “This index will serve as a benchmark for Shariah-compliant funds looking to invest in Singapore, and potentially pave the way for creation of other Shariah-compliant products.”

Yasaar, an organization with a global network of Shariah scholars, will carry out independent screening of the index, which has been certified as Shariah-compliant via a Fatwa by Yasaar’s principles, the statement said.

The FTSE ST Singapore Shariah Index will start by using the FTSE ST All-Share Index, which represents 98 percent of the market’s share capitalization, as a base universe before screening them for Shariah principles, it said.

Index constituents face a business activity screening which will weed out companies involved in non-Islamic finance, such as conventional banking and insurance, as well as avoiding businesses involved in alcohol, pork-related production, non-halal food, entertainment including casinos, gambling and pornography, and tobacco, weapons and defense manufacturing, it said.

The companies will also be subject to financial ratio screening, it said.

To be considered Shariah-compliant, debt must be less than 33.333 percent of total assets, it said. In addition, cash and interest-bearing items much be less than 33.333 percent of total assets, it said.

Accounts receivable and cash must be less than 50 percent of total assets and total interest and non-compliant activities income should not exceed 5 percent of total revenue, it added.

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