KUALA LUMPUR: A rebound in global Islamic bond sales (sukuk) last year has set the foundation for even more issuance in 2017, as investors look beyond traditional fixed-income products for better yields and portfolio diversification.
In a statement on Tuesday, Franklin Templeton Investment said the negative trend in 2016 could reverse this year, as funding challenges pushed governments, especially hydrocarbon-dependent ones in the Gulf Cooperation Council (GCC) region, to consider all options at their disposal to fund declining, but material, budget deficits.
Its chief investment officer of global sukuk and MENA fixed income, Mohieddine Kronfol, said as an emerging asset class, sukuk had continued to make great strides.
“Last year, investment bank J.P. Morgan included sukuk in their suite of global indexes for the first time, reinforcing the transition of Sukuk from the peripheries of the investment universe to more mainstream portfolios.
“While a 25-basis point rate hike by the US Federal Reserve in December stoked some anxiety in debt markets, we remain of the view that the US monetary policy will remain accommodative, perhaps more than the market currently projects,” he said.
This, he said, boded well for investor interest in the comparatively higher yielding and lower global sukuk’s duration.
Looking beyond the GCC, after a tough 2016, Kronfol said Malaysia looked as an interesting market again as the country had always been known as a leading issuer of sukuk since the inception of Islamic finance in the 1980s.
However, he said, the decision by Bank Negara Malaysia to cut short dated sukuk issuances and switch to other liquidity management instruments last year had a significant impact on overall issuance.
“Malaysia too was caught up in a broad Emerging Market sell-down in the wake of the US president-elect Donald Trump’s win.
“In our view, there is a lot of value in the local currency exchange and profit rates, while news that Malaysia's biggest pension fund will offer syariah-compliant plans should also underpin demand for local sukuk,” he said. - Bernama
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