Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
Hang Seng Bank says the fund will invest mainly in the constituents of the Dow Jones Islamic Market (DJIM) China/Hong Kong Titans Index, which was licensed to the bank last month and is the latest addition to the DJIM index series. The fund will be managed by Hang Seng Investment Management, a unit of Hang Seng Bank.
The DJIM China/Hong Kong Titans Index tracks 30 of the largest Shariah-compliant companies whose primary operations are in China and Hong Kong but trade on the Hong Kong stock exchange.
To be included in the DJIM China/Hong Kong Titans Index, stocks must pass industry and financial ratio screens for Shariah compliance. Excluded are companies that are involved in alcohol, defense/weapons, entertainment, financial services, pork-related products and tobacco. Also excluded are companies for which the following financial ratios are 33% or more: debt divided by trailing 12-month average market capitalization; cash plus interest-bearing securities divided by trailing 12-month average market cap; and accounts receivables divided by trailing 12-month average market cap.
Stocks must also have an average float-adjusted market capitalization of HK$5 million in 12-month daily trading volume to be eligible for inclusion.
Stocks that meet these requirements are ranked first by float-adjusted market capitalization and then by 12-month average daily trading volume using the local currency. A final rank by an equally weighted combination of the free-float market capitalization and trading volume is applied.
When the index was launched in early October, the top five components by float-adjusted market capitalization were China Mobile, Cnooc, Esprit Holdings, China Unicom, and Li & Fung.
Launched in 1999, the DJIM indices seek to measure the global universe of investable equities that pass screens for Shariah compliance. The index series includes more than 60 regional, country and industry indices derived from the flagship DJIM index.
The SFC has been working with fund management companies interested in developing Islamic financial products in the Hong Kong, in support of the governmentÆs initiative to develop the territory as an Islamic finance centre in Asia.
ôFacilitating the development of the Islamic investment market is a high priority of the SFC. The introduction of Islamic retail funds gives added variety to our retail fund market and underscores the versatility of our asset management industry,ö says Alexa Lam, the SFCÆs executive director of intermediaries and investment products.
In July, Hong Kong Financial Secretary John Tsang said the government wants to develop an Islamic bond market amid fast-growing investor interest in products that comply with Shariah, or Islamic law. In his annual policy address just last month, Hong Kong Chief Executive Donald Tsang said he hopes to have a planned Islamic bond market in place as soon as possible.
Islamic funds aim to comply with the investment principles under the Islamic religious law of Sharia. The Shariah principles generally preclude investments in businesses such as conventional financial services, alcohol, pork-related products, gambling, leisure and entertainment. Shariah principles also preclude interest bearing investments and investments in companies with unacceptable levels of debt.
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