The Australian financial services sector has taken another step in wooing regional investment through the creation of an Islamic equities index.
The Thomson Reuters Crescent Wealth Islamic Australia index launched today to tap the burgeoning Islamic-finance market domestically and abroad. The index is made up of 143 stocks filtered to exclude banking and traditional financial shares in favour of companies whose businesses meet Islamic principals.
“Australia has a very attractive investment climate because it combines high-quality infrastructure both as a financial market and as a country,” said Thomson Reuters global head of Islamic capital markets Sayd Farook in Sydney.
Dr Farook said the nation benefited from its status as a developed country “with a strong linkage to the growth economies of Asia.”
In fact, the federal government has promoted Australia as a regional hub for financial services in order to woo investment funds from Indonesia and Malaysia and other part of rapidly growing Asia.
The combined market capitalisation of all the stocks in the Islamic index is $160 billion.
Pharmaceutical stock CSL makes up 10.1 per cent of the Islamic index, followed by Woodside Petroleum at 9.5 per cent, and Original Energy at 8.7, per cent. The index, which has a bias toward resources and energy stock, excludes businesses involved in pornography, alcohol, cinema, insurance, gambling, hotels, music, pork and tobacco, among others.
Crescent Wealth believes Shariah-compliant investment in Australia could increase to as much as $13 billion, from a potential pool of $8 billion today. Shariah is the Muslim moral or religious code in Islam, although interpretations vary.
“There is a huge untapped potential to grow Islamic-compliant investment in Australia from investors here and in Asia and the Middle East,” said Crescent Wealth managing director Talal Yassine.
“This index gives these investors a local performance benchmark for the Australian market,” he said.
Mr Yassine said the screens applied to the index are not dissimilar to those used in many socially responsible or ethical funds. However, Islamic funds also shun interest-reliant banking stocks, or companies with high levels of debt or leverage.
To date, the other options for traditional Islamic investors have been Europe, the US and Doha, where the economic situations have not been as robust, Dr Farook said.
Islamic banking assets globally now exceed $1 trillion and could reach $4 trillion by 2020, Crescent said, estimating $50 billion in managed funds invested according to Islamic principles in equities.