CSL top stock in Australia's first Islamic compliant index

AN INDEX for investors who want to build "sharia-compliant" equity portfolios has been launched in Australia. Potential changes to federal tax guidelines could clear the way for Islamic investment products to enter the local market.

By InvestSMART · 2 Feb 2012

By InvestSMART ·
2 Feb 2012

Comments

The Thomson Reuters Crescent Wealth Islamic Australia Index, which was launched yesterday, covers more than 140 stocks with a combined market capitalisation of $160 billion. It joins a list of global Islamic market indices, including the family of Dow Jones Islamic Market indices, and the FTSE Global Islamic Index series.

It is designed to help foreign and local investors buy shares on the Australian market without contradicting Islamic investment principles.

To make the index, ASX-listed companies will be "screened" every three months to ensure they do not earn more than 5 per cent of their total revenue from activities considered "non-compliant", such as music production and distribution, adult entertainment, alcohol, cinema and broadcasting, gambling, "conventional" insurance and financial services, pork and tobacco, weapons and defence.

Companies must also meet sharia financial requirements for low interest-bearing debt and cash levels. The index favours resource and energy stocks, but the pharmaceutical firm CSL claims the biggest share of the index, with a 10.1 per cent holding. Woodside Petroleum (9.5 per cent), Origin Energy (8.7 per cent), BHP Billiton (5.1 per cent) and Rio Tinto (4.9 per cent) follow.

The managing director of Crescent Wealth, Talal Yassine, said Australian companies could potentially attract billions of dollars from global Islamic investment funds.

According to Standard and Poor's, Islamic banking assets are worth more than $US1 trillion globally, with $US50 billion in managed funds invested in equities according to Islamic principles.

"There is a huge untapped potential to grow Islamic-compliant investment in Australia from investors here in Asia and the Middle East," Mr Yassine said.

The index excludes banks and conventional financial firms, and companies with high levels of debt or leverage, such as property trusts. Islamic banks and insurance companies qualify for the index.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

What is the Thomson Reuters Crescent Wealth Islamic Australia Index?

The Thomson Reuters Crescent Wealth Islamic Australia Index is a new Australian equity index launched to track ASX-listed companies that meet Sharia-compliant rules. It covers more than 140 stocks with a combined market capitalisation of about $160 billion and joins other global Islamic market indices such as the Dow Jones Islamic Market family and the FTSE Global Islamic Index series.

Who is the Islamic-compliant index aimed at and what is its purpose for investors?

The index is designed for local and foreign investors who want to buy Australian shares without contradicting Islamic investment principles. It provides a screened, investable benchmark for building Sharia-compliant equity portfolios in Australia.

How are companies screened for Sharia compliance in the index?

Companies are screened every three months to ensure they earn no more than 5% of total revenue from non-compliant activities (such as music production/distribution, adult entertainment, alcohol, cinema/broadcasting, gambling, conventional insurance and financial services, pork, tobacco, weapons and defence). Firms must also meet Sharia financial tests related to low interest-bearing debt and cash level thresholds.

Which sectors and companies have the largest weights in the Islamic Australia Index?

The index generally favours resource and energy stocks. The largest single holding is pharmaceutical firm CSL at about 10.1% of the index, followed by Woodside Petroleum (9.5%), Origin Energy (8.7%), BHP Billiton (5.1%) and Rio Tinto (4.9%).

Are banks and financial firms included in the Islamic Australia Index?

The index excludes conventional banks and financial firms and companies with high levels of debt or leverage (for example, property trusts). However, Islamic banks and insurance companies that meet the Sharia screening and financial tests can qualify for inclusion.

How often is the Islamic Australia Index reviewed or rebalanced?

The index is reviewed and its constituents are screened every three months to ensure ongoing compliance with the revenue and Sharia financial requirements.

How big is the global market for Islamic investment and why does that matter for Australia?

According to Standard & Poor's, Islamic banking assets exceed US$1 trillion globally, with about US$50 billion in managed equity funds following Islamic principles. Crescent Wealth's managing director, Talal Yassine, says that Australian companies could potentially attract billions of dollars from Islamic investment funds in Asia and the Middle East, signalling a sizable pool of demand.

Could the new index lead to Islamic-compliant investment products being offered in Australia?

The article notes potential changes to federal tax guidelines that could clear the way for Islamic investment products in the local market. The index provides an investable benchmark that could support the development of Sharia-compliant funds and products if regulatory and market conditions evolve.