Malaysia set to tighten rules on syariah Islam-compliant stocks
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Certain stocks are expected to experience more volatility than others on November 29, when the Securities Commission (SC) releases its updated list of Islam-compliant syariah stocks.
Analysts believed that property counters, due to their higher leverage, might take a hit from the more stringent financial rules, while others such as plantation as well as oil and gas stocks would receive less impact and might even benefit from the move.
While there would be fewer syariah-compliant stocks, analysts believe more international funds would be attracted into the country since an important aspect of the new rules is the stringent financial ratio benchmarks determining the syariah-compliant status of listed companies.
A sharp sell-down is considered unlikely as fund managers need to balance their portfolios by investing in other counters that comply with the new ruling.
Currently, Bursa Malaysia has 801 syariah-compliant counters with a combined market capitalisation of slightly over 1 trillion ringgit (Bt9.85 trillion).
The new rules are in line with conditions needed in the Dow Jones Islamic Market World Index.
SC executive director for Islamic capital market Zainal Izlan Zainal Abidin expects an orderly transition for both listed companies and fund managers as the market has received prior warning.
He said that the revised screening methodology was in line with international practice and would spur Islamic fund inflows into Malaysia.
“The move will widen the investor base for the nation’s Islamic stocks, which is line with the SC’s plan to internationalise the syariah-compliant equities and fund management industry,” Zainal Izlan said.
The good news is that funds will be given a six-month grace period after November to tailor their investment portfolios.
Meanwhile, Areca Capital Sdn Bhd chief executive officer Danny Wong said syariah-compliant funds were not big in terms of assets value compared with the conventional funds.
He said any sell-down would not be severe since conventional funds were always on the lookout for good counters to invest in.
“It could be a good time to buy a good stock if the price drop significantly,” Wong added. As of August 31, there were 176 Islamic-based funds with net asset value (NAV) of 38.2 billion ringgit, or 11.8 per cent of the combined NAV of 323.8-billion-ringgit syariah-based and conventional-based funds.
