Abstract
Benchmarking Shariah-Compliant stocks listed in Bursa Malaysia, this paper examined whether the stocks which are approved by SACSC are also considered as Shariah-Compliant under International Indices. 35 top Shariah-Compliant stocks listed in Bursa Malaysia were examined against four stock screening criteria of DJIM, MSCI, FTSE and S&P. Due to the differences in stock screening criteria, the factors evaluated that lead to variances in Shariah-Compliant status for a particular stock. The results from the test indicate that Shariah-Compliant stocks listed in Bursa Malaysia are not necessarily Shariah-Compliant stocks in the four Indices of DJIM, MSCI, FTSE and S&P. The high debt and low market capitalization are the main factors of dropping the Malaysian Shariah-Compliant stocks by the four Indices. The three stages of screening which carry the most Islamic stock screening process include screening on industry, income statement and balance sheet.
Highlights
1.1 Research ProblemIn every country, equity market is very important as one of economic generation mediums
Benchmarking Shariah-Compliant stocks listed in Bursa Malaysia, this paper examined whether the stocks which are approved by Shariah Advisory Council of Securities Commission (SACSC) are considered as Shariah-Compliant under International Indices. 35 top Shariah-Compliant stocks listed in Bursa Malaysia were examined against four stock screening criteria of Dow-Jones Islamic World Market (DJIM), Morgan-Stanly Compliance Islamic Index (MSCI), Financial-Times Stock Exchange Shariah Index (FTSE) and S&P
The Shariah-Compliant stocks under SACSC are considered as Shariah-Compliant under International Indices if they follow the ratio test
Summary
1.1 Research ProblemIn every country, equity market is very important as one of economic generation mediums. Screening methodology is one of the essential elements that need to be improved from time to time in order to ensure that the equity market could generate the most possible return to the economy as a whole. This is because, based on screening criteria, stocks are classified as Shariah or non-Shariah compliant stocks. As compared to non-Shariah stocks, even though the stocks are giving up higher return, Muslim investors cannot buy and it might slow down the trading of the stocks. The equities which are in compliance with the Shariah Investment Requirements perform better than conventional equities especially when markets are down. The better performance of Islamic Compliance Companies can stem from the Shari'ah screening criteria which prohibits any involvement in shares of those companies that are excessively leveraged and/or engaged in lending activities (Ashraf & Mohammad, 2014)
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