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.
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.