LANGUAGES

Entries in English and Malay (Bahasa Melayu)

Tuesday, 5 March 2013

Standard & Poor's sees active year ahead for Islamic finance



Banks are expected to continue tapping Islamic debt facilities to keep sukuk markets active in the year ahead, according to a new report from Standard & Poor's, amid mounting cynicism that the asset class is falling out of favour with investors.

But the credit ratings agency warned that the pipeline of new bond sales could become jammed if investors' demands for higher yields on sukuk and longer-dated debts head too high.

"In view of supportive debt capital market conditions, we forecast banks' issuance levels to remain elevated in 2013," the report said. "We expect most of the impetus to come from banks in the United Arab Emirates, the largest issuers in 2012, and Qatar, where issuance has been steadily increasing."

There are some signs that 2013 will not scale the highs reached last year, when total Islamic bond sales reached US$21.2 billion (Dh77.8bn).

Arabian Gulf sukuk issuances have totalled $2.1bn this year. During the first quarter of last year, sukuk sales reached $8.3bn.

Meanwhile, Bank of America Merrill Lynch, Coutts and Société Générale have said the sukuk rally has run out of steam.

Total returns on the HSBC Nasdaq Dubai GCC US dollar sukuk index increased by 10.3 per cent. The banks believe sukuk and other emerging market debts will lag stocks this year.

So far this year, the index has returned just 0.6 per cent while global equities have rallied, with the MSCI World index up 4.7 per cent during the same period.

Others disagree, including HSBC, the biggest underwriter of sukuk debt.

Sales could total between $30bn and $35bn, Mohammed Dawood, the managing director of debt capital markets at HSBC Amanah, told Bloomberg News last month.

Standard & Poor's said it also expected more hybrid issuances by banks during the year as lenders seek out riskier structures to entice yield-hungry investors.

"We anticipate that the expected issuance will show dependence on pricing levels.

"If we were to see a change in the region's fixed-income investors' expectations, such as demands for higher yields on sukuk and longer-term bonds, this could curb issuance activity because regional banks are highly price sensitive," S&P's report said.

Bond yields move in the opposite direction from price.

Returns on safe assets have dwindled as a result of bond-buying programmes by central banks including the US Federal Reserve, the Bank of England and the Bank of Japan, which have pushed yields on many fixed-income assets to below prevailing inflation rates.

Investors have moved to protect themselves against rising inflation and an anticipated rise in interest rates as the global economy recovers, which could cause prices of fixed-income assets to fall. Equities have become more popular as a result.

Data released by BlackRock shows that globally, net inflows into fixed income mutual funds and exchange-traded products have fallen during four out of the past six consecutive months.


(The National / 05 March 2013)



---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

No comments:

Post a Comment

Latest Posts

Upcoming Events on Islamic Finance, Wealth Management, Business, Management, Motivational

Alfalah Consulting's facebook

Followers