New sharia index launched to boost liquidity, investor base
The Indonesia Stock Exchange (IDX) officially launched a new equities index on Thursday in a move expected to boost liquidity and widen the investor base amid a growing interest in equities in the world’s biggest Muslim-majority country.
The Indonesia Sharia Stock Index (ISSI), which comprises 214 Indonesian stocks, allows investors to buy stocks without violating Islamic investment guidelines which have been screened by the Indonesia Ulema Council (MUI).
“Trading practices that are not compliant with sharia principles can be eliminated, such as those that are engaged in excessive risk-taking, gambling, manipulating, speculation from interest payments,” MUI deputy chairman Ma’ruf Amin told The Jakarta Post following the sharia index’s launch event at JW Mariott Hotel in Jakarta.
The index excludes stocks of banking, and cigarette and alcohol firms, among others.
The sharia index includes blue chip stocks such as top automotive company Astra International, instant noodle giant Indofood CBP Sukses Makmur and number one telephone company Telekomunikasi Indonesia.
The sharia-compliant index accounts for 44 percent of the exchange’s total market capitalization or more than Rp 1,500 trillion (US$175.5 billion) as per Wednesday, IDX president director Ito Warsito said on the sidelines of the launch. The broader stock exchange comprises 428 stocks with a total market capitalization of Rp 3,391 trillion as of Thursday.
“The new index will boost trading interest at least for investors who comply with sharia principles. The market will be more liquid, with both regional and world bases of sharia investors having richer choices of stocks,” Mandiri Sekuritas market analyst Rafdi Prima said in an interview at his office in Jakarta on Thursday.
The ISSI will complement the existing 30-stock Jakarta Islamic Index (JII) which will tap the more than 200 million Muslims in the country, as well as other sharia markets in the world.
The new sharia index, ISSI, traded lower on its debut, to close at 122.69, down 0.7 percent from the market opening. The broader benchmark Jakarta Composite Index (JCI) also lost 0.77 percent on Thursday, closing at 3,808.71.
In another attempt to tap the rapid growth of the country’s stock market, the IDX plans to introduce a new and longer schedule for trading in the second half of this year. IDX’s Ito said that after the change, trading on the nation’s bourse would begin at either 9 a.m. or 8:30 a.m. as compared to the current 9:30 a.m.
“We will announce the new hours in the second half [of 2011] because there are still some preparations we need to work on — the IT system and brokers,” Ito told the Post.
Market close will remain unchanged at 4 p.m., he said, adding that he hoped the new hours would “align the nation’s bourse with regional stock exchanges, namely Singapore and Hong Kong”.
“At present, fund managers are setting strategies based on Singapore and Hong Kong. With the new hours, we don’t have to be followers and will be included in their strategies. So if other markets fall, we don’t have to follow,” Ito said.