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Wed 1 Jul 2009 04:00 AM

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Standard practice

Arabian Business talks to Charbel Azzi about S&P’s hard sell on the best financial indices in the Middle East.

Standard practice
Dubai’s Charbel Azzi is in charge of rolling out the S&P financial indices across the MENA region.
Standard practice
The S&P 500 is the world’s prime index with around $1.8 trillion of money invested into it and around $4.8 trillion of benchmarked money against it.

Arabian Businesstalks to Charbel Azzi about Standard and Poor’s hard sell on the best financial indices in the Middle East.

Charbel Azzi is the man tasked with rolling out the world famous Standard and Poor financial indices across the MENA region. His talk of “large-mid and mid-small,” may not make him a laugh riot at dinner parties, but what he has got to offer the business community from Amman to Riyadh could be transformative — if the region can make itself sufficiently transparent. And as anyone familiar with doing business in this part of the world knows, that is a big ‘if.’

He says: “What we are trying to create, or replicate, is transparency for the region’s indices. Transparency creates liquidity, and at the moment that is a big problem. It also narrows down spreads. And that is what clients now want — they want more transparency.”

The S&P 500 is of course one of the most famous indices in the world, it is one of the most widely followed indices of large-cap American stocks.

In fact, so important is its place on the international financial landscape considered to be, that as a bellwether for the American economy it is included in the authoratitive Index of Leading Indicators.

Azzi explains: “We create indices to give opportunities for benchmarking and for investment opportunities. Take, for example, the S&P 500, which is the largest index in the world today. It has around $1.8 trillion of money invested into it, and it has around $4.8 trillion of benchmarked money against it. Obviously, we try to replicate the success of the S&P 500 globally. The index business provides transparency for the markets, so you can go online, look at our data, and find all the transparency you need in terms of taking investment decisions, and in terms of benchmarking decisions for asset managers or financial institutions. Financial institutions benchmark the performance of their funds against our index.”

Standard and Poor, famous too for its ratings business, has only had an office in the GCC since 2006, despite its commitment to the region since 1997. Today, the emphasis is on concentrating on indices coverage of the MENA region, and convincing the market of the benefits of buying into the added value of these indices — particularly for the Sharia sector.

“We provide many indices globally, however, our primary focus today would be our MENA indices as well as our global Sharia compliant indices. We started off in 1997, under our emerging market indices umbrella, covering Saudi Arabia and Bahrain and Oman. Then we moved on to add the UAE in 2004, and Kuwait and Qatar. These indices are either conventional or Sharia. And that is where the big added value is. We today are one of the largest Sharia index providers in terms of indices. We cover eleven countries. We have the Pan-Arab index, and the GCC index. In fact, we cover in excess of 80 percent of these markets country by country.”

Azzi says that S&P’s Sharia universe is approximately 12,000 stocks in 54 countries, which are then strictly filtered into bespoke indices to meet clients’ needs.

“Now, starting last week, we have added a big enhancement to our MENA indices. Basically, that was size and sector splits. So, today, for the MENA region you have got large-cap, mid-cap and small-cap. Also, large-mid and mid-small. We have added sector and industrial splits. So we have really created a significant degree of granularity.

“The main thing for financial institutions is they run their own internal and external funds, and they want to benchmark their performance against something. They pick up our indices to benchmark their performance. That is one way to look at it.

“They also want to create an investment product based on an index in the GCC. So they come to us and tell us, for example: we are looking to create a product on the S&P 500 Sharia. And we can carve that out and license it and give it to them, and they in turn can take it and do an investment product with it and sell it to their clients.”

Azzi has lived in Dubai for 23 years, he says, and is keen to stress that, like him, Standard and Poor are in the MENA region for the long term.

And then he is back to enthusiastically talking business: “Going back to the index, let me give you the whole picture. There are four main pillars for our index services. One is benchmarking. Two is investible, by which you can create products around our indices. Three is custom indices. So, a company, could, for example, ask to have created an index which looks at the Middle East, excluding Jordan, Syria, and Lebanon. They could also request no bank stocks, and ask to have their volatility capped to ten percent. Our competitive advantage is that we have a broad spectrum of equity coverage. We are one of the biggest in this field – we have 20 analysts just working on custom indices. We can create a custom index in no time.

“The fourth pillar is data; we provide index level, constituent level and corporate actions information on all our indices. It is a very in-depth analysis of these indices and their constituents.”

Azzi knows that competing in the MENA region will be no cake walk, but is determined that S&P will succeed here. After all, he says, “we have the competitive advantage with our name, our history, and our competence.”

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