BY PETER EGWUATU & NKIRUKA NNOROM
The introduction of NSE Lotus Islamic Index, NSE LII, by the Nigerian Stock Exchange (NSE) will increase the influx of both foreign and local investors, particularly those from the Middle East who are ethically minded into the capital market, the Chief Executive Officer, NSE, Mr. Oscar onyema, has said.
He observed that the introduction was particularly important being the first index to be developed by the NSE in partnership with a local firm.
Speaking at the launch of thew NSE LII at the Lagos floor of the NSE. he explained that the Islamic Index could serve as a general benchmark for ethical funds and could also be seen as a basis for creating Mirror Funds, Index Funds, Exchange Traded Funds, Index options, which would broaden the range of instruments traded on the NSE.
He said, “By this launch today, The NSE has increased the variety of our indices to seven, giving opportunities to investors with varied investment appetite and interests that track our indices. As you may be aware, five of our indices were developed in partnership with a foreign partner, Bloomberg. The NSE LII is the first index we are developing with a local partner.
“The NSE Lotus Islamic Index (NSE LII) consists of companies whose business practices are in conformity with the principles of Shari’ah and we believe that it will increase the breadth of the market and create an important benchmark for investments as the alternative non-interest investment space widens.
We are positive that this bold step will bring on board various ethical investors who were previously not sure about the suitability of investing in stocks, to embrace the market –this directly makes our market more accessible and more inclusive.”
The Managing Director, Lotus Capital, Mrs Hajala Adeola, whose firm partnered with the NSE to develop the product, explained that the introduction would reduce the research cost and the time required by an investors to independently create a Sharia complaint equity portfolio.
She noted that the NSE has been listed among other elite Exchanges like New York Stock Exchange, and London Stock Exchange that have launched and made success of the product.
Explaining the rules guiding the equities selection, she noted that no sector would be allowed to account for more than 40 percent of the index, adding that the index would be reviewed every six months.
She further stated that it has a buffer of 30 firms to consider for inclusion at any point but the stock’s liquidity level was key.
On debt, she said total debt as a percentage of the firms’ total value should not be more than 33 percent for it to qualify. She said, “Constituent stocks are ranked based on the highest market capitalisdation and average daily volume traded over a period of six months with a minimum average volume of 100,000 units.”