Malaysian sukuk gets boost from equities turmoil

Thursday, 11 August 2011 00:36 - - {{hitsCtrl.values.hits}}

The plunge in global equities is proving to be a boon for Malaysia as investors seek out the nation’s investment-grade Islamic bonds over sukuk from Indonesia and the United Arab Emirates.

Malaysia’s dollar-denominated Shariah-compliant notes due in 2015 yielded 2.184% on Monday, down 15 basis points in the biggest one-day drop in a month, reports Bloomberg.

The yield is the lowest since 27 June, compared with similar-maturity Indonesian Islamic debt, rated four steps lower than Malaysia by Standard & Poor’s.

The yield gap with sukuk of emirate Ras Al Khaimah, rated a step higher than Malaysia, is the widest since June 17.

US stocks is at their lowest since 2008 and about US$2.5 trillion was erased from global equities as S&P’s cut of the US credit rating and the euro region debt crisis stoked concern that the global economy would slow. The price of oil, one of the UAE’s chief export earners, has slumped 14 per cent in the past week.

The Bloomberg-AIBM- Bursa Malaysia Sovereign Shariah Index, which tracks the nation’s most- traded domestic debt, rose to a record on the day of the US downgrade.

Malaysia’s “yields should go lower because of a flight to quality”, said Zeid Ayer, who helps oversee US$700 million as chief investment officer in Kuala Lumpur at CIMB-Principal Islamic Asset Management.

“Malaysia’s credit rating is obviously stronger and the stronger credits will perform better than some of the names.

Oil prices are down and certainly there’s a concern because the price of oil is pretty much what drives Gulf economies.”

S&P rates Malaysia, the world’s biggest sukuk market, the fourth-lowest investment grade of A-. Indonesia is rated BB+, the highest junk rating, while Ras Al Khaimah is rated A.

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