S&P Launches Shariah Indices
Posted by Khaled on December 21, 2006
By David Oakley
Published: December 18 2006 21:29 | Last updated: December 18 2006 21:29
The growing power of Islam in the financial world will be underlined on Monday with the launch of three benchmark indices designed to track the health of companies that comply with the laws of the Koran.
The three new indices will be called the S&P 500 Shariah Index, the S&P Europe 350 Index and the S&P Japan 500 Index, the index services arm of Standard & Poor’s, the ratings agency, said on Monday.
They will be based on the well-established western versions from which they take their names but strip out the companies that do not comply with Islamic law, and are not shariah-compliant.
Alka Banerjee, vice-president of S&P Index Services, said: “Potential growth in shariah-related investing around the world is enormous, but has been held back by a lack of globally accepted benchmarks and other tailored investment tools.
“The new S&P shariah indices will provide Islamic investors, and the institutions that serve them, with a rigorous and consistent set of international benchmarks to help them gauge the state of the market in this growing area.”
Islamic finance, which is estimated to be worth $500bn, has grown dramatically in the past year, fuelled by the oil-related boom in the Middle East and appetite among western institutions to invest in shariah-compliant products.
The three indices will exclude stocks of companies that operate in alcohol, defence, entertainment, financial services, pork-related products and tobacco as well as companies whose financial ratios violate shariah-compliance measures, such as those with high debt-to-equity ratios.
Of the 500 companies in the S&P 500, 295 are deemed to be shariah-compliant, while 139 are shariah-compliant in the S&P Europe 350 and 286 are shariah-compliant in the S&P Japan 500.
S&P said the launch of the indices, which use December 31 2000 as a base date, was prompted by demand from investors from both the western and the Muslim world.
“Investors from all regions and religions want to know how this sector is performing and what exactly is happening,” Ms Banerjee said.
“These indices will also help providers create structured investment products tailored to the Islamic market.”
Had it been launched at the end of 2000, the S&P 500 Shariah Index would have outperformed its European and Japanese counterparts. It is expected to launch above the 1,400 mark today, while the S&P Japan 500 Shariah Index is expected to launch around 1,200 and the S&P European 350 Index is expected to launch at about 1,100.
Copyright The Financial Times Limited 2006
