New SGX Islamic Banking Index Boosts Singapore’s Status as Asia’s Top Financial Hub

Islamic  banking
A branch of Maybank Islamic in Singapore
(Photo: Twitter)

Singapore, Asia's leading financial center, took a key step towards maintaining this status by recently launching a new Shariah-compliant index to serve as a benchmark for Shariah-compliant funds wanting to invest in Singapore.

The "FTSE ST Singapore Shariah Index" is Singapore's second foray into the arcane world of Islamic banking or Islamic finance. While peculiar to the Islamic world, Islamic banking has, nevertheless, grown to the extent that over US$2 trillion in assets were held by sharia-compliant banks, mutual funds, and other financial institutions in 2017. This factor underscores the need for asset-management tools such as benchmark equity indices.

The FTSE ST Singapore Shariah Index was launched by FTSE Russell, Singapore Press Holdings (SPH), publisher of The Business Times, and Singapore Exchange (SGX). It will track and solely focus on Shariah-compliant companies listed on the Singapore Exchange or SGX.

The FTSE ST Singapore Shariah Index will be part of the FTSE ST Index Series. At launch, there were 48 constituents in the FTSE FT Singapore Shariah Index.

Ng Kin Yee, senior vice president and head of market data and connectivity at SGX, said the company welcomes the new index to the "growing suite of FTSE ST indices."

He pointed out that the outlook for the global Islamic fund and wealth management sector continues to be positive. The sector is supported by an increasing range of Islamic financial instruments available to investors.

The FTSE ST Singapore Shariah Index will become a benchmark for Shariah-compliant funds looking to invest in Singapore. It will potentially pave the way for the creation of other Shariah-compliant products.

The launch of the FTSE ST Singapore Shariah Index comes at a time when demand for shariah-compliant investment products continues to see strong growth. FTSE Russell Managing Director for Asia Jessie Pak revealed the company began calculating shariah-compliant indices over 10 years ago.

Pak said FTSE Russell continues to see growing demand for appropriate benchmarking tools that can be used as the basis for shariah-compliant investment products.

SGX head of research and products Chan Kum Kong said Shariah-compliant products have become more appealing to mainstream investors, who see them as a way of diversifying their portfolios.

Industry experts noted that Singapore ideally positioned to capitalize on the growth of Islamic finance. In terms of regulations, Singapore has the right ingredients in terms of flexibility and clear regulations. Geographically, Singapore has an advantage because of its close proximity to the populous Muslim countries of Indonesia and Malaysia.

Singapore is also near China whose "One Belt, One Road" initiative opens opportunities for infrastructure financing.

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