Hong Kong has set its goal to be an Islamic financial centre for Asia through the Hang Seng Islamic China Index Fund

Hong Kong moved a step closer to becoming a hub for Islamic financing with the official launch of its first fund based on Islamic or Shariah laws.

Local regulator the Securities and Futures Commission (SFC) recently approved the Hang Seng Islamic China Index Fund for sale to retail investors as Hong Kong taps into one of the fastest expanding fund markets in the world, estimated to be worth US$500 billion by Standard & Poor’s, the international ratings agency.

Hang Seng Bank said the fund will invest mainly in the constituents of the Dow Jones Islamic Market (DJIM) China/Hong Kong Titans Index. The index includes the 30 largest Shariah-compliant stocks of companies doing business in the mainland and Hong Kong and traded on the Hong Kong Stock Exchange. Blue-chip Hong Kong listed companies China Mobile, CNOOC, Esprit Holdings, China Unicom and Li & Fung are among the index constituents.

Islamic funds do not invest in businesses that trade in conventional financial services, alcohol, pork-related products, gambling, leisure and entertainment. They also preclude companies that have a high level of risk, and do not allow the collection of interest.

Priority investments

The SFC has been working with fund management companies in developing Islamic financial products in Hong Kong to grow the city as an Islamic financial centre in Asia.

“Facilitating the development of the Islamic investment market is a high priority of the SFC. The introduction of Islamic retail funds gives added variety to our retail fund market and underscores the versatility of our asset management industry,” said Alexa Lam, the SFC’s Executive Director of intermediaries and investment products.

Earlier in July, Hong Kong Financial Secretary John Tsang said the government wants to develop an Islamic bond market amidst growing investor interest in products that comply with Shariah law. Mr Tsang said as Hong Kong had become a popular place for Chinese mainland companies to raise funds on the stock market, it could also be a gateway for Middle Eastern investment in China.

In his 2007 annual policy address in October, Hong Kong Chief Executive Donald Tsang said he hopes to have a planned Islamic bond market in place as soon as possible. “To further consolidate Hong Kong’s position as a global financial centre, we should actively leverage on this new trend by developing an Islamic platform in Hong Kong…we will focus on developing an Islamic bond market,” he said.