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Figure 2: Sectors for Islamic investments in Malaysia SHARIAH COMPLIANT STOCKS
88% of the securities currently listed on Bursa Malaysia are Shariah compliant and represent two- thirds of Malaysia’s market capitalisation. At Bursa Malaysia, choices are abundant as investors have access to an extensive selection of Shariah compliant stocks across diversified industries for broader and deeper investment portfolios.
ISLAMIC EQUITY INDICES
Bursa Malaysia is the world’s only exchange with three comprehensive and transparent Shariah screening processes: FTSE Group, Yasaar Ltd and the SC’s Shariah Advisory Council (SAC). These screening processes that look at both qualitative and quantitative measures help us meet local requirements and align us with international standards. The FTSE Hijrah Shariah index (FBM Hijrah Shariah) and the FTSE Bursa Malaysia EMAS Shariah index (FBM EMAS Shariah) provide a broad benchmark for Shariah compliant investment. These indices are designed for investors who wish to invest in Shariah compliant stocks that are consistent with Shariah principles.
SUKUK (ISLAMIC BONDS)
The Sukuk market has been the driver of growth for the Malaysian Islamic Market with many world’s first issues, cemented by sizable amount and innovative structures. Malaysia is one of the largest Sukuk issuance centres in the world and accounts for approximately two-thirds of the global Sukuk outstanding. Bursa Malaysia also provides a facilitative and progressive environment for Sukuk issuance by local and international issuers. Issuing Sukuk in Malaysia is cost-effective as International Issuers have the flexibility to issue either ringgit or non-ringgit denominated Sukuk using international documentation, based on UK or US laws and the choice of international credit rating agencies.
SHARIAH ETF
ETF has been one of the most innovative investment vehicles over the last two decades. We are the first to list Islamic ETF in Asia. Unlike other conventional ETFs, Shariah ETF is an excellent alterna- tive for investors seeking Shariah compliant investment instruments. The Dow Jones Islamic (DJIM) index tracks the largest blue chip listed Malaysian companies that comply with Shariah investment guidelines. With 88% of the securities listed on Bursa Malaysia being Shariah compliant, we are perfectly placed to create a variety of Islamic ETFs that are transparent and cost-effective, providing greater access for investors to diversify efficiently.
ISLAMIC REITs
To keep pace with the ever-changing appetite of investors, Malaysia proactively provides innovative Islamic market products that best meet the market demand. Apart from being the first to introduce Islamic REITs guidelines, Bursa Malaysia is the world’s first plantation REITs and hospital REITs. Bursa Malaysia is the first jurisdiction in the global Islamic financial market, as well as the first mar- ket in the world, to list an Islamic REITs. These efforts have facilitated the creation of a new asset class for investors and fund managers to diversify investment sources and portfolios.
SHARIAH-BASED UNIT TRUST FUNDS
For industry players who wish to invest in a diversified portfolio of Shariah compliant securities, we have for you the options of Islamic equity funds, Sukuk funds and other funds managed by compe- tent and professional managers in accordance with the Shariah principles.
ISLAMIC STRUCTURED INVESTMENT PRODUCTS
Malaysia’s wide range of Islamic products caters to various investment styles and meets specific risk profiles, attractive return requirements and high market expectations. Via the local and inter- national brokers BM’s innovative Islamic structured investment products offer unique opportunities that allow for better risk management and provide investors with valuable portfolio diversification tools in a vibrant market environment.
OFFSHORE ISLAMIC MARKETS
The Labuan International Financial Exchange (LFX), a web-based financial exchange, provides further impetus to the development of offshore Islamic Markets. This wholly owned subsidiary of Bursa Malaysia is based in Labuan IOFC, a tax haven, and is regu- lated by the Labuan Financial Services Authority (Labuan FSA). LFX offers listing and trading facilities for a wide range of financial and non-financial products, as well as Islamic financial products. The rules of LFX are designed to be liberal and cater to the listing of a variety of multi-currency securities and instruments while offer- ing speedy approval processes and attractive tax benefits.
Source: Bursa Malaysia
klse.com 16 Global Islamic Finance May 2012
percent of market share. The vast majority of funds raised in Saudi Arabia and Malay- sia are channelled locally. Though these countries make up a high percentage of the overall Islamic financial market, Islamic funds outside of these countries rarely tar- get them for investment. Instead, countries such as the US hold equities and assets in the popular Middle East and North Africa (MENA) region.
In terms of asset allocation, equities are the main asset class for these funds worldwide, accounting for almost half of all assets. Ma- laysia is the largest Islamic equity market for Islamic funds, with Saudi Arabia, the US, Ireland and Kuwait as the other major mar- kets. Funds actively investing in the Islamic money market have increased over the years. This market accounted for 23.3 per- cent of the total Islamic financial market at the end of 2011, as investors sought safety among equity markets which remained vola- tile and uncertain during the ongoing global economic crisis.
On the currency front, the Saudi riyal and Malaysian ringgit dominate the market, as a result of the large number of domestic funds in both regions. These currencies currently account for 37.7 percent and 25.8 percent of the market respectively. Funds managed in US dollars are increasing, and account for 20.3% of the total Islamic funds’ assets at the end of 2011; but although US dollar funds are the most numerous in the market, they still trail in terms of average asset size per fund. On average, US dollar funds have just USD36.2 million in assets, as compared to USD59.7 million for Malaysian ringgit funds and USD139.5 million for Saudi riyal funds.
Despite the current challenges faced within the global economy, Islamic funds continue to grow, with the prospects for 2012 some- what brighter than 2011. Wealth in Muslim countries continues to chart strong growth on the back of decent economic growth and higher oil prices, with a knock-on effect on demand for Shariah-compliant investments. The growing public awareness of Islamic wealth management products and services will help to attract more funds from inves- tors, while the growing positive track record of Islamic funds assists their penetration into more developed financial markets and use by sophisticated investors. Despite the ongoing challenges in the global economy, we remain optimistic that Islamic equity markets will outperform 2011 returns, given a gradual recovery in key markets which will in turn improve investor sentiment.
As Malaysia, alongside Saudi Arabia and other key markets, paves the way for Islamic financial investments, there are a number
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