Wednesday, July 01, 2009

Islamic ETF in the U.S., sukuk data from 2009Q2

One of the areas of Islamic finance in the United States that has remained relatively stagnant in terms of developing new products and the entrance of new companies is Islamic investing. However, with the launch of the first Islamic ETF in the US, this is changing. The new ETF is the Dow Jones Islamic Market International Index Fund and it is based on the Dow Jones Islamic Market Titans 100 Index composed of 100 large international Shari'ah-compliant equities. The new ETF was launched by Javelin Investment Management. The index will be rebalanced annually except for corporate actions like delistings and mergers which will be adjusted as needed.

Despite a recent surge of sukuk issues in the GCC, the pricing of these sukuk remain elevated compared with the pricing from a year or two ago. The latest reminder is the Saudi Electricity Corporation sukuk which was priced at SAIBOR+160bps compared with SAIBOR+45bps for their first sukuk in 2007. The increase could be due to a combination of factors including recent defaults as well as the impact of the credit crisis which reduced risk appetite and a fall in the oil price since its highs of $147 per barrel last year which has reduced capital inflows into the GCC.

The sukuk market for new issuance in the second quarter is 35% below the same period last year, but a pickup in activity of 164% in the second quarter compared to the first quarter as well as a healthy pipeline indicates that recovery may be in sight, according to Zawya.

Other News
  • First Community Bank, an Islamic bank in Kenya, launched an investment banking subsidiary, FCB Capital, the first of its kind in the country.
  • Mawarid Finance, an Islamic financial company in the UAE, signed an agreement to cooperate with the Dubai government in promoting small and mid-sized enterprises (SMEs) and hopes to sign similar agreements in the other Emirates.
  • A law passed in the Malaysian parliament would make rulings by the Shari'ah Advisory Council binding on courts when the courts refer disputes to the Council. A member of parliament complained during debates that the Islamic financial industry is too focused on profits and rates in line with conventional financial industry interest rates are too high.
  • Growth of the HSBC Amanah brand in the UAE suggests a lot of demand for Shari'ah-compliant financial services, according to Frank Kane writing in The National.
  • The six major Pakistani Islamic Banks are close to launching an Islamic interbank market to avoid relying on conventional short-term financing.
  • Islamic finance is finding a nexus between Shari'ah-compliant investments and a focus on sustainability with recent investments in the water industry and agriculture.
  • Sukuk holders of the Golden Belt 1 sukuk were unable to reach a decision on whether to dissolve the sukuk and receive a payout. The sukuk was issued by the troubled Saad Group.
  • At a time when some sukuk issuers are under pressure to meet their obligations, Kingdom Installment Company is redeeming the full value of their ijara sukuk that financed 5,000 home purcahses and was launched in 2006.

1 comment:

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