Petrodollars from Middle Eastern oil producers are becoming a hot target in east Asian capital markets. On November 22, Hang Seng Bank launched the Hang Seng Islamic China Index Fund, the first retail Islamic fund approved by the Securities and Futures Commission of Hong Kong.
The same day, the South Korean daily > reported that since 2000, especially in the last two or three years, international oil prices have skyrocketed, the Islamic world's financial assets have been expanding at a rate of 15 percent a year, and South Korea is making policies to attract capital investment from these oil-producing countries. On November 21, the Bank of Korea published a report titled "> Policy Points for the World's Major Financial Countries on Islamic Islam", which clearly proposed the proposition of attracting capital from Islamic oil-producing countries to South Korea. Earlier in September 2007, the Bank of Japan joined the Islamic Financial Services Council as an observer, in an aggressive gesture to attract financial capital from Islamic oil-producing countries.
According to the Bank of Korea's report, the Islamic financial sector suffers from religious constraints and inadequate infrastructure. It has 28 percent of the world's population but only 0.8 percent of the world's financial assets. With economic growth averaging 4 per cent, the potential for Islamic countries to expand their financial capital abroad is high.
It is reported that after Hang Seng Bank launched the first Islamic fund in Hong Kong, Standard Chartered Bank and other institutions are also considering introducing similar products in Hong Kong. At the same time, Islamic funds have attracted wide attention because of their unique investment rules attached to Islamic doctrines.
Managed by Hong Kong's Hang Seng Investment Management Limited, the Hang Seng Islamic China Index Fund invests in 30 large listed companies operating in China and Hong Kong. "The most attractive thing about Hong Kong is the China story behind it, which is of the greatest interest to Gulf investors, and we want to take advantage of these developments." A., global head of the Dow Jones Islamic Market Index. Rushdi Siddiqui said.
Leung Wing-Cheung, general manager of Hang Seng Bank's personal finance and wealth management business, said at a press conference that the fund was expected to have an initial size of HK $1 billion, with institutional investors and retail clients taking a 50-50 share, with investors from the Middle East and Hong Kong. "The creation of the Hang Seng Islamic China Index Fund is a response to the needs of institutional investors in the Middle East. It took months of communication and preparation," said Leung. Institutional investors in the Middle East are very bullish on the Chinese market and invest through funds with relatively few restrictions."
The Islamic financial market is one of the fastest growing segments of the global financial sector. The current Islamic financial market is estimated to be worth $1 trillion and is expected to grow by 15% a year to reach $1.4 trillion by 2010 and $2.8 trillion by 2015.
Invest in 30 concept companies in China
The Hang Seng Islamic China Index Fund mainly invests in components of the Dow Jones Islamic Market China/Hong Kong Titan Index. The index, the latest addition to the Dow Jones Islamic Markets Index series, was compiled by Dow Jones in October this year and comprises 30 large Islamic companies operating in mainland China and Hong Kong and listed on the Hong Kong Stock Exchange.
By Shariah, it means conforming to the principles of Islamic investment as interpreted and formulated by the Shariah Consultant in accordance with the Koran. These principles include: the prohibition of investment in industries that are against Islam, such as alcoholic beverages, pork-related products, recreation and entertainment, military and defence equipment, tobacco industry, traditional financial services, etc.; Nor is it allowed to invest in companies that rely primarily on interest income or have excessive debt ratios.
According to Dow Jones data as of Nov. 8, the index's 10 constituent stocks are: China Mobile (0941. HK), CNOOC (0883. HK), Esprit Global (0330). HK), China Unicom (4.310,-0.03,-0.69%, enter the bar)(0762. HK), Hong Kong and China Gas (0003. HK), Swire Plc A(0019. HK), Li & Fung (0494. HK), Zijin Mining (2899. HK), China Merchants International (0144. HK) and The Hongkong Electric (0006. HK). In the industry distribution data of the index, communication accounts for about 28%, energy accounts for 18%, industry accounts for 9%, utilities (2323.137,-3.98,-0.17%, enter it) accounts for 9%, basic materials accounts for 8%, consumption accounts for 17%, others accounts for 11%.
It is said that the Hang Seng Islamic China Index Fund will partly replicate this index ratio when investing. Entry fees start at HK $20,000 and management fees top 1 per cent a year. Fung Hsiu-chung, deputy general manager of Hang Seng Bank, said that institutional investors in the Middle East are very interested in Hong Kong and the mainland market and have asked if there are products suitable for Muslim investment, so they expect the fund to attract Gulf petrodollars to the Hong Kong market.
Dividend Purification is diverted to charity
But Gulf investors won't be easy to enlist. A., global head of the Dow Jones Islamic Market Index. According to Rushdi Siddiqui, the social responsibility and faith-based moral principles of Islamic finance are a combination of finance and faith. "The investment philosophy is very simple, no interest, no speculation and everything else."
Hang Seng Bank has invited three scholars familiar with Islamic teachings to form the Islamic Fund's Islamic Law Committee to advise fund managers on doctrinal issues. "We received a Fatwa, a certificate recognized by Islamic scholars, which says our fund meets the investment standards set by Islamic law." "We are the first fund in Hong Kong that has been blessed by Allah," said Fung Hau-chung, a deputy general manager at Hang Seng Bank.
Islamic financial activities must comply with the investment rules laid down by the Shariah Adviser. Among them, speculation and interest income are strictly prohibited, as are derivatives, hedging and other risky investment instruments. But in today's financial markets, the 1,400-year-old teachings seem too strict. On the basis of respecting the principles of Islamic investment, the Hang Seng Islamic China Index Fund adopts the principle of dividend purification to take into account the interests of investors.
"Dividend purification" refers to the purification of "impure" amounts according to Islamic standards. The "impure" money can be the income earned on the cash portion of any fund's portfolio, or the dividends generated from business activities that are forbidden by Islamic law. For the purpose of "dividend purification", 5% of the original dividend must be deducted from these earnings, and the amount involved may be used for charity.
'This principle won't affect the return performance of the fund,' Mr. Feng said. With the 30 stocks in the Dow Jones index yielding 4%, the loss in interest is a very modest 5% of 4%, or 0.02%.
Hong Kong Vision: Gateway to Islamic Finance
Rushdi Siddiqui told reporters that last year Gordon Brown, then Britain's finance minister, said London would be a gateway to Islamic financial markets, and officials in Singapore said similar things, but he believed Hong Kong would be a real gateway as well.
With the dollar weak and Middle Eastern countries unable to take money directly out of the U.S., they have poured money into Asian markets in recent years. In fact, business and financial institutions around the world, including Hong Kong, have long coveted the Islamic financial market.
As early as 2004, Li Ka-shing's Cheung Kong Group and Dubai Islamic Bank set up an Islamic investment fund, which became a pioneer for Hong Kong businesses to enter the Islamic finance market. The fund, which has returned 20 per cent a year, is the best performer in the region over the past five years. It mainly serves wealthy individuals from the United Arab Emirates and the Middle East, and invests in property markets across Asia, including China, Hong Kong and Singapore.
In addition, financial institutions such as HSBC and Standard Chartered have also carried out Islamic finance business overseas to provide services for local Muslims. Standard Chartered Bank entered the Islamic finance market in the United Arab Emirates in 2004, providing Islamic personal finance, leasing finance, demand deposit, credit card and other consumer financial products. By the end of 2005, there were more than 250 Islamic mutual funds globally, with more than $11 billion in assets under management, according to data.
British experience: specific tax regimes go first
Financial centres such as London and Singapore have made the development of Islamic finance one of their priorities, and have adapted their local laws and regulatory systems to the requirements of Islamic finance. Alderman Hohn Stuttard, then Lord Mayor of London, also highlighted the U.K. 's experience in developing Islamic financial markets when he visited Hong Kong in mid-October to meet with Chief Executive Donald Tsang and Joseph Yam, chief executive of the Hong Kong Monetary Authority. 'To develop Islamic financial products, you have to have the relevant talent,' Mr. Stadter told the Times at the time. At the same time, due to the differences between the structure and design of Islamic financial products and traditional products, such as the concept of no interest, relevant tax systems need to be adjusted.
According to the City of London, a new finance bill was introduced in 2005, which included changes to the taxation of Islamic financial products. Since then, the UK has gradually developed a series of Islamic financial products. HSBC and Lloyds TSB, Britain's fifth-largest bank, are among 23 banks that offer Islamic products to the country's 1.6 million Muslims and international investors. HSBC offers Sharia-compliant mortgage, pension and stockbroking services; Lloyds TSB, for its part, began offering Islamic demand deposits and home loans in 2,000 branches in Britain last year.
The Islamic Bank of Britain, the country's first fully sharia-compliant Bank, opened in 2004. The 2007 UK Budget announced further measures to promote Islamic finance in the UK, including a new tax regime. Under the new regime, sukuks, or Islamic bonds, can be issued, held and traded across the UK on the same basis as traditional securities.
In 2006, the European Islamic Investment Bank (EIIB) became the first independent Islamic investment bank to be established with the approval of the UK Financial Services Authority. The EIIB provides asset management, private banking and advisory services and attracts Gulf funds to invest in UK real estate through the issuance of Islamic bonds.
Hong Kong was a late starter in Islamic finance. The Islamic financial market has a history of about 40 years. In his policy address, Donald Tsang called for the development of an Islamic financial platform in Hong Kong, and plans to visit Middle Eastern countries early next year to attract local capital to invest in Hong Kong. A working group has been set up to study the development of a sukuk market in Hong Kong and will complete its report by the end of the year, Hong Kong's Secretary for Financial Services and the Treasury, Alan Chan Ka-keung, revealed.
