Thomson Reuter and Crescent Wealth launched on Wednesday Australia's first research-based Islamic index. The index aims to provide investors who want to build Islamic-compliant Australian equity portfolios a powerful new tool for benchmarking.
Muslim pilgrims pray at the Grand mosque in Mecca during the annual haj pilgrimage November 11, 2010.
The index, called the Thomson Reuters Crescent Wealth Islamic Australian Index, screens companies listed with the Australian Stock Exchange (ASX) for compliance with Islamic investment principles. It will initially cover 134 securities which have combined market capitalisation of over $160 billion.
The screening filters that the index uses exclude banks and conventional financial stocks, firms with high level of debts or leverage such as property trusts and other stocks that conflict with Islamic principles. It has a dynamic bias towards resources and energy firms and includes blue-chip stocks such as BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO).
Thomson Reuters, a global business information provider, and Crescent Wealth, an Australian Islamic investment manager, created the index to position Australia as an attractive destination for global Islamic investment funds estimated to exceed $1 trillion and another $50 billion managed funds that invest in equities based on Islamic principles.
Over the years, the steady development of the Islamic capital market (ICM) across the world positioned it as a major counterpart to the conventional capital market. Its growth comes at a time that the need for global funding continues to grow making ICM products attractive to different market participants outside its expected Muslim clients.
Islamic finance laws prohibit the earning of interest. Instead, enterprises that comply with the Shariah law focus on buying and selling of tangible assets such as property.
"Australian markets are stable and have attracted growth fundamentals that Islamic investors are looking for in today's challenging macro-environment. Using the well-documented and objective Shariah screening process, the new co-branded index will highlight these investments with low levels of balance-sheet debt. It is a powerful new tool for Islamic investors to geographically diversify their portfolios while increasing investment opportunities into an important G-20 country like Australia," Thomson Reuters Global Head of Islamic Finance Rushdi Siddiqui said in a statement.
There is much wealth in the hands of Muslims, particularly from those who come from the oil-rich Middle Eastern region as well as businessmen from large Islamic countries that are considered emerging economies such as Malaysia and Indonesia.
Talal Yassine, managing director of Crescent Wealth, said that there is a huge untapped potential to further grow Islamic-compliant investment in Australia from investors in Asia and the Middle East.
"The investment theme reflected in the new index has broad appeal to conventional investors beyond those driven by Islamic principles. With its natural weighting towards low levels of debt and leverage, an Islamic investment strategy is a sound one in the current environment. Many companies that make up the index carry low account receivables and a greater portion of their funds are invested in the business rather than sitting as cash or short-term investments," Mr Yassine said in a statement.
Crescent Wealth aims to grow up to $13 billion in funds under its management by 2019 from a current potential pool of $8 billion.
On its first day of operation, pharmaceutical stock CSL captured 10.1 per cent of the Islamic index, followed by Woodside Petroleum with 9.5 per cent and Original Energy with 8.7 per cent.
Besides the launch of the Islamic Index, the last few months saw growth in Australia's stock market following the launch in late 2011 of the Chi-X Stock Exchange and the addition of 29 companies to the National Stock Exchange (NSX) of Australia as well as its offer of zero application fees.
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