FTSE Russell, a provider of global indices, data and analytics, has launched a new shariah-compliant index which tracks companies listed on the Singapore Exchange (SGX) as demand for shariah-compliant investment products continues to see strong growth. According to SGX in a statement on October 5, the index, called FTSE ST Singapore Shariah Index, will solely focus on shariah-compliant companies listed on SGX.
FTSE Russell Managing Director for Asia Jessie Pak says the company has “began calculating shariah-compliant indices over 10 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,” Ms. Pak says in the statement.
Ng Kin Yee, senior vice president and head of market data and connectivity at SGX, says the company welcomes the new index to the “growing suite of FTSE ST indices.”
“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. 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,” he adds.
Using the FTSE ST All-Share Index as a base universe, constituents are screened against a clear set of shariah principles to create a robust Shariah-compliant index for the Singapore market. At launch, there are 48 constituents in the FTSE FT Singapore Shariah Index.
Among financial ratios that must be met by companies to be considered as shariah-compliant include: debt is less than 33.33% of total assets; cash and interest-bearing items are less than 33.33% of total assets; and total interest and non-compliant activities income should not exceed 5% of total revenue.
Although the FTSE ST Singapore Shariah Index is the first shariah-compliant index that focuses solely on SGX-listed companies, it is not the first shariah-compliant index to be listed on the stock exchange.
In 2006, SGX partnered with FTSE and UK-based consultancy Yasaar Ltd to launch the FTSE SGX Asia Shariah 100 Index. The index comprises of shariah-compliant stocks in Japan, South Korea, Taiwan, Hong Kong and Singapore.
The global Islamic banking and finance industry has grown over the years to have more than $2 trillion in total assets as at end of 2017. This growth has been accompanied by a need for appropriate asset management tools, including benchmark equity indexes that are shariah-compliant.
Source Asia Asset Management