Islamic bonds are outperforming emerging market debt for a second month

Islamic bonds are outperforming emerging market debt for a second month as a new note sales rebound, Malaysia increases spending on roads and power plants and restores confidence in the Persian Gulf.

notes global Shariah-compliant returned 1.2 percent in December, the HSBC / NASDAQ U.S. Dollar Dubai sukuk index shows, while bonds in the developing regions declined 0.7 percent, according to JPMorgan Chase & Co. 's EMBI Global Diversified index. emerging market returns have fallen as rising yields on U.S. Treasury bonds gave the dollar investors less incentive to buy riskier assets with fixed income.

Islamic debt sales increased 34 percent in the second half compared with the first six months as investor confidence was boosted by agreement of Dubai World September with most of its creditors to restructure $ 24,900,000,000 in debt. The development of national bond funds suffered net outflows for three consecutive weeks to 08 December, the longest streak since the first quarter of 2009, according to Cambridge, Massachusetts-based research firm EPFR Global.

"The demand for sukuk is outstripping supply," said Mohd Noor Hj A Rahman, head of fund management unit in Kuala Lumpur Islamic-based OSK-UOB Unit Trust Management Bhd which manages about 250 million ringgit ($ 81 billion) of assets, in an interview yesterday. "The best case scenario and debt restructuring in the Gulf has given comfort to investors."

'Revolver' for sukuk

Global sales of sukuk, which pay returns based on asset flows to comply with Islam's ban on the receipt and payment of interest, fell 24 percent this year to 15.3 billion U.S. dollars. Bid was $ 6,520,000,000 in the first half to $ 8.75 billion in the second. Issuance reached a record $ 31 billion in 2007.

"Everyone is struggling to buy sukuk and supply is limited," said Noripah Kamsa, Chief Executive of CIMB-Principal Islamic Asset Management Bhd in Kuala Lumpur, in a telephone interview yesterday. "Pension Houses are coming to us and saying they want this money is invested in sukuk. For the first quarter, we still expect a very good price for sukuk."

A Malaysian government initiative 10 years of private project run, including a nuclear power plant and an underground network, will boost sales of Shariah-compliant debt next year, Prime Minister Najib Razak said in a speech October 25 in Kuala Lumpur.

Saudi stimulus

1440000000000-Rial Saudi Arabia (384 billion) stimulus plan borrowers can see the kingdom overtake Malaysia as the largest issuer of Islamic debt next year, Tariq Al-Rifai, director of Islamic market indexes by Dow Jones Dubai Indexes, said on 17 December. The world's largest exporter of oil in August announced a five-year development plan to stimulate growth, create jobs and diversify its economy from hydrocarbons.

infrastructure spending in the Persian Gulf and enhance Malaysia's sukuk issuance in 2011, said Abdul Ghani Badlisyah, Kuala Lumpur-based chief executive of CIMB Islamic Bank Bhd, a unit of CIMB Group Holdings Bhd, arranger sukuk this year than . Islamic bond sales may match 2007 levels next year, said in an interview on 22 December.

Average yields of Shariah-compliant bonds of the Gulf Cooperation Council countries fell for the third consecutive week, up 13 basis points, or 0.13 percentage points this week to 5.5 percent yesterday, according to HSBC / NASDAQ GCC sukuk Dubai Dollar Index.

Spread narrows

The performance of Dubai Department of Finance sukuk 6.396 percent in November 2014 fell 33 basis points this month to 6.48 percent. The extra yield investors demand to hold sukuk Dubai government in place in Malaysia fell 62 basis points to 336.

The difference between the average yield of sukuk emerging markets and interbank offered rate in London fell 172 basis points this year to 297 yesterday, according to HSBC / NASDAQ U.S. Dollar Dubai sukuk index. In the GCC, the gap narrowed by 185 basis points to 359.

"We see that the spread over Libor sukuk has declined, reflecting the demand for sukuk is stronger," said Zamri Shariff, director of asset management in Asia Finance Bank Bhd, Kuala Lumpur unit, based in Qatar Islamic Bank SAQ, in an interview yesterday. "We should start seeing other issuers enter the fray, the sukuk issue non-traditional countries such as Thailand, Korea and the Philippines."