A report issued by KFH-Research states that the global sukuk market has shown resilience this year given the volatility in global bond markets as market players react to positive economic growth prospects as well as concerns over monetary policy in the US, the world’s largest bond market.
The report mentions that despite rising yields across the board, sukuk issuances have kept up momentum with over US$26.6 billion placed during the second quarter, which adds to the US$34.5 billion placed during the 1Q13 to bring the first half total to US$61.2 billion.
The amount was however lower than the amount issued in the same period of 2012, mainly because in January 2012 the market saw the largest issuance to date. On a monthly basis, the primary sukuk market in 2013 has outpaced the previous year every month since January 2013 except June 2013.
Moreover, the report states that Malaysia held the largest market share of the primary market in 1H13 primarily due to the central bank issuances that amounted to almost US$28.2bln (1H12: US$24.5bln).
The Malaysian market saw US$18.4 billion worth of sukuk papers domiciled on its shores in 2Q13, while Saudi Arabia witnessed USD4.5bln and the UAE USD1.4bln, collectively accounting for 91.0% of the primary market.
US dollar amounts were down in most domiciles (except the UAE) in 1H13 from the previous year due to lower sovereign issuances, except Malaysia which has seen a 53.5% slump in corporate issuances.
The report explains that global outstanding sukuk reached USD245.3bln as at end-1H13, up 7.0% from US$229.3bln as at end-2012 and 16.4% y-o-y. The secondary sukuk market in Malaysia remained the largest totalling US$148.2bln and accounted for 60.4% of the total market as at end-1H13. This was followed by Saudi Arabia (US$32.0bln, 13.0%), the UAE (US$20.9bln, 8.5%) and Qatar (US$17.8bln, 7.3%).
Growth in the secondary market over the first half of the year was driven by Turkey, rising by 133.3% from the amount outstanding as at end-1H12. This was followed by Saudi Arabia (28.4%) and Indonesia (13.5%).
Furthermore, the report adds that the HSBC/Nasdaq SKBI Yield Index shows that overall sukuk yields have risen sharply in 2Q13, with an increase of 43.0% to the highest level in over 25 months.
The sharp rise in sukuk yields, especially in comparison to US Treasury benchmarks, followed the rise in overall emerging market debt, which had seen yields for borrowers in developing countries climbed to 5.02% after reaching an unprecedented low of 4.04% on 24 January 2013, according to the Bank of America Merrill Lynch US Emerging Markets External Debt Sovereign and Corporate Plus Index.
Similarly, the emerging markets, which includes the Middle East and Asia, have seen credit default swaps tumbled at the end of the 1H13, according to the Markit CDX Emerging Markets Index, on concerns that the Fed will lead policy makers in reducing support to bolster growth as economies from China to Brazil slow.
Prices of the emerging market credit default swap benchmark fell 4 cents in June to 107 cents on the dollar. The decline was the biggest since the failure of Lehman Brothers Holdings Inc. reverberated across financial markets and caused the index to plunge 6.7 cents in the period ended 18 November 2008.
Based on the issuance momentum seen in 1H13, the global sukuk issuance is expected to illustrate resilient but moderated growth this year. The prospects for the sukuk market are expected to remain bright. Having grown at a compound annual growth rate of 57.0% over the past decade, the sukuk industry is expected to continue its growth trajectory for the remainder of the year.
Global Sukuk Issuance Trend