The local bourse has formalized its venture into Islamic Finance on Monday, with the announcement of 47 Shariah-compliant listed companies.
Designed to tap the global Islamic market, the index that will have Shariah-compliant stocks will follow the Islamic law that prohibits market participants to invest into companies that sell goods such as alcohol, tobacco or firearms.
Also, companies with large amounts of debt and are related to gambling, meat and conventional financial services, such as banking and insurance, are not Shariah-compliant equities.
“Previously, Muslim Filipinos who wanted to invest in Shariah-compliant companies needed to turn to other Asean [Association of Southeast Asian Nation] markets if they wanted to invest in equities. Now, with the ease and guidance of such a list, they do not have to look elsewhere,” said Hans Sicat, PSE president and chief executive officer.
With this program, Sicat said the bourse is confident that more investors from other countries who abide by the Shariah law will take a look at the Philippines for possible investment opportunities in equities.
“In a way, this is like expanding the financial market of the Philippines because it can now accommodate Muslims investors, not only those that are in the Philippines but also outside the country,” National Commission on Muslim Filipinos Secretary Mehol Sadain, who was also present in the PSE briefing on the Islamic Finance held Monday, further said.
Listed firms will be screened for Shariah-compliance every quarter. Companies that listed at the exchange in the last quarter of 2013 will be included in the evaluation period at the start of the second quarter next year, following the availability of their financial statements.
The PSE also partnered with Islamic Finance expert IdealRatings to screen listed securities for Shariah-compliance.
The screening was based on the globally accepted Accounting and Auditing of Islamic Financial Institutions (AAOIFI) standards, which excludes companies with businesses in conventional interest-based lending, financial institutions, pork, alcohol, intoxicants, tobacco, arms and weapons, gambling, casinos, derivatives, pornography, music/entertainment, human stem-cell research, among others. Some financial ratios in relation to interest were also considered.
PSE will publish the list of the Shariah compliant companies on its website, and will be including this list in End of Day reports to market participants.
Based on initial simulations, there could be around 50 PSE-listed companies that could pass the AAOIFI Shariah Rulebook and their daily market capitalization exceeds $62 billion.