PSE eyes $1.4-T Muslim funds with shariah-compliant stocks

MANILA, Philippines - The Philippine Stock Exchange (PSE) is hoping to tap into a potential market of more than 1.5 billion Muslims worldwide with an estimated $1.4 trillion in investible funds by offering shariah-compliant stocks, the bourse’s top executive told The STAR.

Shariah-compliant equities follow the Islamic law which does not allow investors to put money into firms that benefit from interest or the sale of goods such as alcohol, tobacco or firearms. They also steer clear of companies with large amounts of debt on their balance sheets and those whose business is related to gambling, meat and conventional financial services such as banking and insurance.

PSE president Hans Sicat said the exchange is holding preliminary discussions with the National Commission on Muslim Filipinos (NCMF), the Asian Development Bank and financial experts from Indonesia on how the Philippines can take advantage of the growing market for Islamic finance.

“We’re in early days of our shariah-compliant project. We’re working with [NCMF] Secretary Mehol Sadain and experts from Indonesia, and the ADB. The idea is to identify and have shariah compliance certified according to standards to bring a different asset class. This should help bring in ethically focused investors, including Muslim Filipinos who currently invest in shariah-compliant Indonesian and Malaysian equities,” Sicat told The STAR.

The PSE is looking to come up with a list of shariah-compliant stocks in an attempt to open stock trading to more Muslims.

Although Sicat did not give any time frame, he said such a plan would broaden investor base by tapping a relatively new, but already developed market.

Shariah-compliant investments have been growing in popularity due to the Middle East’s vast pool of wealth fueled by rising oil prices.

Reports indicate that the worldwide Islamic finance market could reach $4 trillion by 2020 while the Muslim population is seen to increase 35 percent in the next 20 years.

Shariah-compliant investment avenues are now becoming available in other countries aside from India, which has the largest number of listed shariah-compliant stocks in the world. The Dow Jones has an Islamic Index. Among the countries with the largest shariah-compliant banking assets are Iran, Saudi Arabia and Malaysia.

The total value of shariah-compliant assets has grown 150 percent since 2006. Globally, banks hold over 90 percent of Islamic assets.

The Gulf Cooperation Council, which comprises six member states (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE) collectively hold shariah-compliant financial assets of over $250 billion.

The PSE is banking on initial public offerings/new share issuances as well as new product offerings which include exchange-traded funds and real estate investment trusts, to bolster trade volumes. The Philippines’ more than $200 billion stock market is Asia’s 12th largest.