KUALA LUMPUR: The strongest demand at a Malaysian Islamic bond sale in 17 months signals investors are returning to the world’s biggest sukuk market.
Borrowing costs on the government’s five-year local currency debt fell five basis points this month to 3.67% after reaching 3.72% on July 31, the highest level since May 2010, a central bank index shows.
Similar-maturity US Treasuries yield 1.38%, German bunds 0.7% and Japanese securities 0.29%.
Malaysian debt is still appealing even as speculation of reduced US stimulus curbs appetite for emerging-market assets, according to CIMB Group Holdings Bhd.
Investors bid for 2.92 times the RM4bil of syariah notes on offer at a July 19 auction, the highest demand for all government securities since February 2012.
“Malaysia’s sukuk still offer higher returns than those in developed markets,” Mohd Fadzil Mohamed, who helps oversee RM3.4bil as chief executive officer at Libra Invest Bhd, a unit ofECM Libra Financial Group Bhd, said in an Aug 2 interview.
“They will continue to attract local and foreign long-term institutional investors such as pension funds and insurance companies,” he said.
Malaysia’s five-year Islamic notes gained 10.4% in 2013, the Bank Negara gauge shows. The Bloomberg Global Developed Sovereign Bond Index has declined 4.5%, while securities in emerging markets dropped 7.3%, according to JP Morgan Chase & Co’s EMBI Global Index.
Overseas investors reduced holdings of Malaysian syariah-compliant notes, both corporate and sovereign, by 3.3% to US$5.8bil in June from an unprecedented US$6bil in May, central bank data showed last week. Ownership of all government securities fell 5% to US$66bil.
The Bloomberg-AIBIM Bursa Malaysia Sovereign syariah Index, which tracks the most-traded notes, advanced 0.1% to 111.014 on Tuesday and is up 0.7% this year.
Issuance of local-currency company sukuk isn’t sufficient to keep up with demand. Malaysia’s syariah-compliant banking assets climbed 6.3% to US$162bil in May from end-December, figures from Malaysia International Islamic Financial Centre showed on Aug 1. — Bloomberg
Sales dropped 63% to RM21.6bil in 2013 from a year earlier, after reaching an all-time high of RM95.8bil in 2012, data compiled by Bloomberg show.
Malaysia accounts for 60.4% of the US$245.3bil of Islamic bonds outstanding worldwide, Nik Mohamed Din Nik Musa, Kuala Lumpur-based director of MIFC’s promotions unit, told reporters Aug 1. Issuance in Malaysia totalled US$41.5bil in the first half, or 68% of the global total, he said.
“Foreign holdings of Malaysian government paper are at a comfortable level,” Mohamad Safri Shahul Hamid, the Kuala Lumpur-based deputy chief executive officer of CIMB Islamic Bank Bhd, a unit of CIMB Group, said in an Aug 3 e-mail.
“Judging from the massive demand generated by the government’s sukuk issuance last week, I’m sure this attracted plenty of demand from foreigners as well.