FTSE ST Singapore Shariah Index: The Halal Version of the Straits Time Index (STI)

*Article is updated as of 7 May 2020

FTSE ST Singapore Shariah Index, a new Shariah-Compliant index, has recently being launched in October 2018.

Why should we be excited?

Because for the first time, Singaporean Muslims investors now have a benchmark for Shariah-compliant companies listed on Singapore Exchange (SGX).

Think about this as the Halal version of the Straits Time Index (STI).

This wasn’t the the first time FTSE Russell, SGX and Yasaar partnered together to launch a Shariah-compliant index.

Back in 2006, they came together to launch the FTSE-SGX Asia Shariah 100 index, which includes listed companies from other Asian countries.

This FTSE ST Singapore Shariah Index will focus on SGX-listed companies only.

What does this means to Singaporean Muslim investors?

There’s 2 good reasons that will benefit the everyday Singaporean Muslim retail investors:

  1. They can now handpick individual companies or financial products from the list to invest in, without second-guessing whether they are Shariah-compliant or not.
  2. They can expect more Shariah-compliant products to be created in the near future, such as the popular Exchange Traded Funds (ETFs).

Previously, Singaporean Muslim investors do not have a halal alternative to the Straits Times Index (STI) ETF.

STI ETF is popular and attractive among the general local investors because they get to diversify their investments across Singapore’s top companies without committing too much capital into any individual companies, while keeping the research legwork to the minimal.

However, as the STI ETF comes as a ‘bundle’ in a form of the top 30 companies listed on Singapore Exchange (SGX), these companies are essentially a mixed of Shariah-compliant and non-compliant ones.

Hence, it is not ideal for the Muslim investors.

Now with the launch of this index, it helps even the savvy ones to sift out non-Shariah compliant companies quickly before diving further into the financial details of the remaining identified Shariah compliant firms.

Wait a minute – how do they go about creating this Index in the first place?

Shariah screening is done by a panel of Shariah scholars from Yasaar, a global independent Shariah consultancy firm.

Firstly, companies which are involved in non-Shariah compliant activities such as non-Islamic banking, alcohol, pork-related products, entertainment, tobacco and weapons are sift out.

So you can imagine companies listed in SGX such as Genting Singapore, which involves in entertainment, and Thai Beverage, which deals with alcohol, will be excluded from this first round of filtering.

Next – the remaining companies are screened out if they fall outside the acceptable financial ratios under the Shariah.

For example, the company must have debt which is less than 1/3 (or 33.333%) of its total assets.

If we looked at DBS most recent 2nd Quarter of 2019, we can see that their debt is more than 33.333% (91% in fact) to its total assets.

In this instance, DBS will be excluded from this index for this quarter (unless they chose to greatly reduce to that acceptable ratio in the next quarter).

Do note that the list of companies which are identified as Shariah-compliant in the index may change from time to time if they fail in any of the stages of the screening process.

Shariah screening is reviewed on a quarterly basis in March, June, September and December.

As of the latest update on its factsheet (30 Sep 2019), there are currently 38 companies on SGX which are Shariah-compliant.

What are the current top 10 companies identified as Shariah-compliant?

If you have been wondering from the start which companies exactly that have been identified as Shariah compliant in the Singapore Exchange, here it is (based on market capitalisation weightage) as of 30 Sep 2019:

  1. Singapore Telecommunications (Singtel)
  2. Hongkong Land Holdings
  3. Capitaland
  4. Keppel Corporation
  5. ComfortDelGro
  6. Singapore Airlines
  7. Venture Corp
  8. Mapletree Industrial Trust
  9. Singapore Press Holdings
  10. NetLink NBN Trust

How to check the latest factsheet?

Step 1
Go to FTSE Russell Factsheet search page here.

Step 2
Type in the search bar with “FTSE ST Singapore Shariah Index” and enter.

Step 3
Results will appear under Market-Cap Weighted -> Asia Pacific. Click on “FTSE ST Singapore Shariah Index” and the PDF download will begin.

To Summarise…

We’re seeing good initiatives being implemented from the respective financial bodies and organisations in the recent times.

With the swelling Islamic Banking & Finance industry, it’s about time we see such asset management tools such as this benchmark equity index.

It’s only getting started.

Importantly, it just made our jobs much easier today.

24 Comments

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