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Sharia Index for Thai stock market

Global index provider FTSE International and the Stock Exchange of Thailand (SET) have teamed up to create the FTSE SET Sharia Index (FSTSH) as a basis for index-linked products.

The FSTSH, which made its official debut on the SET on May 25, opens up the Thai capital market to investors looking for Islamic investment products. The index includes a wide range of products including exchange traded funds, funds and other index-linked products.

The FSTSH is the seventh index in the FTSE SET Index series, which is designed to measure the performance of the Thai capital market and serves as a basis for index-linked products. The first six indexes in the series are segmented by market capitalisation.

The launch of the FSTSH addresses the expanding sharia investment market.

Moody's says Islamic finance has been growing at an impressive rate of 15 per cent per year for the past three years. This is a result of the economic strength of Islamic countries and the promotion of Islamic finance products in many countries such as Indonesia, Malaysia and Singapore. In Thailand, four Islamic funds have been established to date.

Securities to be included in FSTSH must pass two Islamic finance screenings. In a business-activities screening, the issuers of the securities must be consistent with sharia law. This means they must not be involved in conventional finance (non-Islamic banking, finance and insurance), alcohol, pork-related products and non-halal food production, packaging and processing or any other activities related to pork and non-halal food, entertainment (casinos, gambling, cinema, music, pornography and hotels), tobacco or weapons, arms and defence manufacturing.

In a financial-ratios screening, issuers of securities must have debts amounting to less than 33 per cent of total assets; cash and interest-bearing items must represent less than 33 per cent of total assets; accounts receivables and cash must represent less than 50 per cent of total assets; and total income from interest and non sharia-compliant activities must not exceed 5 per cent of total revenue.

The strict enforcement of the above screenings assures investors of the stability of the issuers, thus enhancing investor confidence in the FSTSH. While catering to domestic and international investors looking to invest in a transparent and sharia-compliant manner, the FSTSH is aimed at encouraging issuers to create structured investment products tailored to the global Islamic market.

For further information, please contact the writer at athicha.vuttiviroj@mayerbrownjsm.com or visit www.mayerbrownjsm.com.

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