S&P outlines sharia index plans

Standard & Poor's (S&P) newly-launched sharia stock indexes have had a quiet reception from the market since their launch last month, but the rating agency is confident that a range of sectoral indexes will be more successful.

The agency launched sharia versions of the US S&P 500, the S&P Europe 350 and the S&P Japan 500 indexes in December.

John Davies, S&P's senior director of index services for Europe, told Risk News: "Investment banks want smaller, more liquid baskets – 25-30 stocks, not 295. We have had requests for sharia-compliant sectors, for example renewables, water and property – even a sharia-compliant Russia index. That will probably happen some time this year."

S&P is also developing sharia-compliant indexes for the Gulf Cooperation Council nations, which will be released by the end of March.

Davies predicted that the indexes could be used as the foundations for exchange-traded funds (ETF). "We have had some interesting discussions with US banks about an ETF in New York. Structured products are limited in the US – we are confident there will be some products based on the headline indexes, but they will be more use as benchmarks."

Davies admitted, however, that Standard & Poor's is very much in second place behind Dow Jones, which has produced sharia indexes since 1999. "We are disappointed that Dow Jones has the first-mover advantage... but there is still potential for our sector products," he said.