New index for $1.2t Islamic finance industryThomson Reuters announced the launch of the Thomson Reuters Global Sukuk Index, an independent and transparent benchmark for investors seeking exposure to sukuk (Shariah-compliant) fixed-income investments, to be used to monitor the performance of the sukuk market. The announcement of the launch of the index was made today at the Global Islamic Finance Forum (GIFF) 2012 in Kuala Lumpur, Malaysia.
The $1.2 trillion Islamic finance industry is currently growing at more than 15% per annum, and it is led by the Islamic debt capital market, which is primarily composed of Sukuk. It is frequently the topic of conversation by regulators, international lending agencies, bankers, and asset managers in the G-20 countries as well as the 57 Muslim countries for raising funds. The Thomson Reuters Global Sukuk Index will attempt to bridge the challenge of information asymmetry in the global sukuk market.
“These are unprecedented times for the $214 billion sukuk market; there have been defaults, restructuring, maturing, rollovers, corporate issuers, launch of sukuk funds, announcement of secondary market platforms (Saudi Arabia), innovative issuance (Khazana’s Renminbi) sovereigns declaring issuance (South Africa), and the growing development of the Islamic debt capital market to compliment the bank financing model,” Rushdi Siddiqui, global head of Islamic finance, Thomson Reuters, said.
“The common denominator of need here is an independent benchmark, including independent pricing, to measure accountability and performance. We spoke to customers and listened to their feedback about sukuk data collection, methodology and pricing. We quickly realized that there is a need for an independent entity such as Thomson Reuters to provide impartial data to inspire confidence and trust for investors.”
In addition to being primarily used as a benchmark for investors seeking exposure to Shariah-compliant fixed-income investments, the Global Sukuk Index may serve to increase secondary market trading in this growing asset class and facilitate cross-market relative value trading among different asset classes. The index will initially include a composite and investment grade indices. Year to date performance for the Thomson Reuters Global Sukuk index is as follows when compared with JP Morgan EM index and DJI.
“The global sukuk market is becoming an increasingly important and gradually integrated market of choice for those needing to raise capital (Gulf, European and US entities) and those interested in investing in this asset backed/based investment class. One of the most important takeaways from the global financial crisis is the need to better measure, monitor and manage risks, and the Thomson Reuters Global Sukuk Index will be one of the early reference points for global issuers and investors,” Siddiqui, added.
Pricing is sourced from Thomson Reuters EJV database. Thomson Reuters produces pricing evaluations using two primary methodologies: Model and Dollar Pricing. Most issues priced by the model approach incorporate a benchmark for each market, credit spreads and other variables. Thomson Reuters Dollar pricing is applied mainly to issues that are unique in their structure or to high –yield securities particularly when the issuer of those securities has defaulted on a bond or has fallen below investment grade. All issues are individually priced and inputs include quotes from the primary dealer and other market makers, and traded prices in the security. All indices will be dollar denominated and rules for inclusion will be sukuk with amount outstanding of not less than $100 million and above.
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