Malaysian government launches Asia's first Islamic exchange-traded fund(ETF)

KUALA LUMPUR (Thomson Financial) - The Malaysian government launched Monday Asia's first Islamic exchange-traded fund (ETF) in a bid to cement its position as the regional hub for the Sharia-compliant market, the fund's manager said.

The MyETF Dow Jones Islamic Market Malaysia Titans 25 (MyETF-DJIM 25), owned by state-controlled fund management firm Valuecap Sdn Bhd, is also Malaysia's first national ETF.

ETFs are index funds that can be traded, like stocks, on exchanges.

Government-linked investment companies (GLICs), including Khazanah Nasional Bhd and the Employees Provident Fund, will be selling a portion of their respective stakes in some state-linked companies in exchange for units in the ETF, which will have an initial size of 10 billion units, said Zainal Izlan, chief executive of i-VCAP Management Sdn Bhd, the manager of the fund.

Investors will gain immediate exposure to 25 leading Sharia-compliant companies listed on the Malaysian stock exchange through the fund, he said.

Zainal Izlan said the introduction of the national ETF is in response to the government's call to widen the array of Sharia-compliant products, in line with efforts to strengthen Malaysia's position as an Islamic financial hub.

The ETF is also aimed at increasing the free float of stocks covered by the fund by releasing some shares held by government-linked investment companies and at the same time boosting liquidity and promoting greater retail participation in the stock market, Zainal Izlan said.

'MyETF-DJIM 25 is designed to be a liquid, low-cost financial instrument for investors seeking a performance generally similar to the benchmark index,' he said.

The initial subscription price will be 1.00 ringgit per unit and the fund is scheduled to be listed on the main board of the stock exchange on January 31.

The top five stocks that make up the index are Sime Darby, IOI Corp, DiGi.com, Kuala Lumpur Kepong and MISC Bhd.

Malaysia's second finance minister, Nor Mohamed Yakcop, said the launch of the fund is in line with the government's plan to enhance Malaysia's leading position in Islamic finance, as well as to boost liquidity in the local stock market by gradually cutting its stakes in government-linked companies.

'With greater liquidity, investors will be able to buy and sell a large amount of shares, one or two million shares for example, without any major movements in the prices (of stocks being traded),'' he told reporters after launching the fund.

Nor Mohamed said seven GLICs will buy a total of 700 million units of the first national ETF, with the goverment planning to launch more national ETFs in the future.

On the performance of the economy, the second finance minister said the government is confident of overcoming the impact of a mild recession in the US as regional economies have shown signs of 'semi-decoupling.''

A mild recession in the US will not affect robust growth in China and India, thereby allowing the two Asian giants to continue to drive growth in regional economies

'Lights are coming out in Asia (and driving growth in the region),'' he said, referring to what he sees as the ability of Asian economies being able to partially decouple from the US.

'We should do all right (in the event of a mild recession in the US),'' he said, adding that the government has no plans to introduce new fiscal policies to offset the impact of a mild recession in the US.

The second finance minister also praised the performance of Valuecap Sdn Bhd, saying the state-linked investment fund has registered a strong growth of over 75 percent since it was set up four years ago.

The fund generated 2.5 billion ringgit of revenue last year, compared to 1.4 billion ringgit in 2006, Nor Mohamed said.