Last Thursday, Asia-headquartered brokerage firm, CGS-CIMB Securities announced the launch of two new Islamic finance trading capabilities.
The new solutions, iCash and iTradeSyariah, are available for investors in Singapore and Indonesia respectively, and offer users access to Shariah-compliant stocks.
Underpinned by the three key Shariah principles of morality, transparency and fairness, the release shared with media pointed to research by Indonesian public university, Gadjah Mada, which reveals that the global shariah-compliant funds market has grown by more than 300% to $200 billion in assets under management (AUM) in less than a decade. Additionally, the announcement cited research by Fitch Ratings into how Islamic finance now accounts for 20% of AUM in Southeast Asia.
The Singapore-based solution is the first of its kind within the city-state and can be accessed via the CGS-CIMB Securities’ iTrade platform. It offers users investment products listed on five global exchanges; the Singapore Exchange, Hong Kong Exchange, Nasdaq, New York Stock Exchange and the American Stock Exchange.
Meanwhile, the Indonesian product, offers Shariah-compliant investment options listed on the Indonesia exchange.
ESG alignment
Speaking to FinanceAsia, Syed Muhammad Alsagoff Singapore head of Shariah Investments explained that the products took approximately nine months to develop and are a response to strong growth in Shariah-compliant investment. “The Islamic finance sector is worth USD 3.374 trillion,” he said.
“We have witnessed the introduction of Islamic indices like the S&P 500 Shariah, a subset of the widely recognised S&P 500, which only includes Shariah-compliant constituents, the Dow Jones Islamic Index, along with the issuance of green sukuks or bonds.”
“ESG and Shariah investment approaches both share an inherent moral imperative to do no harm while encouraging sustainable economic activity. This common purpose can theoretically expand the investment universe for ESG investors in leading Islamic markets, such as Malaysia and Indonesia, while ESG data is still expanding.”
Riba versus returns
Shariah-compliant investment takes an exclusion approach to prohibit exposure to harmful products or activities, including, gambling, alcohol and tobacco. It also prohibits the accumulation of riba, which is most closely translated in English as ‘usury’.
“A common misperception that often gets thrown around when people talk about Shariah-compliant or even ethical investing is that you have to sacrifice your returns,” explained Alsagoff.
“The opposite is however true. Shariah-compliant funds are screened out firms that take on copious amounts of debt, hence investors often end up purchasing some of the strongest and most sustainable companies in the market. For instance, Singapore’s SingTel is a Shariah-compliant stock with a consistent performance on the SGX.”
Other popular Shariah-compliant organisations providing investment options include Keppel DC REIT, Lenovo Group, MTR Corporation, Adobe Inc and FedEx Corporation, he noted.
According to the S&P 500 Ratings, the global Islamic finance industry is expected to expand 10-12% from now until the end of 2022. “This is largely due to the expansion of Islamic finance assets in some GCC countries, Turkey and Malaysia, where sukuk – or “bonds” – issuances exceed maturities,” Alsagoff added.
Both investment products can be accessed through CGS-CIMB Securities’ iTrade platform, and were launched by virtual and physical means, Malaysia CEO and group head of Shariah Investment Services, Ruzi Ajith, told FA.
“As a Group, CGS-CIMB’s decision to explore a hybrid launch programme was largely due to the rise in millennial and generation Z investors, who are always looking for trading platforms that can offer them a hassle-free user experience.”
The firm’s announcement pointed to how 78.9% of Indonesian retail investors are under 40 years of age. “According to the Economic Development Board, both millennials and gen Zs will make up 75% of ASEAN consumers by 2030,” Ajith added.
“Fitch Ratings estimates that the growth rate of Islamic funds (84% nominal/13% annualised) has exceeded that of the broader global mutual fund industry (68% nominal/11% annualised), based on the latest comparable data for the five years to end-Q3 2021 (compiled by Lipper and ICI Global data,” said Algasoff.
“Hence, the bias towards under-leveraged businesses meant that investors who choose to hedge their funds in Shariah-compliant funds remain pretty much unscathed during and after financial crises.”
