Malaysia, Indonesia sukuk markets to slow in near-term: Fitch

Issuance in core markets, which include the two countries, fell 14.4% in Q3.

Sukuk market activity in Malaysia and Indonesia will slow in the near-term amidst continued market volatilities, reports Fitch Ratings.

Sukuk issuance in core markets–which include Indonesia, Malaysia, the GCC, Turkey, and Pakistan–fell 14.4% in Q3, in tandem with bond issuance also falling 14.1%. 

Fitch said that the rise of interest rates, high oil prices, ongoing geopolitical events, and lower emerging-market debt appetite will contribute to the slump in the near-term.

“The sukuk pipeline is developing behind the scenes, and waiting for the right market conditions, despite the fall in issuance last quarter,” said Bashar Al-Natoor, global head of Islamic Finance at Fitch Ratings. 

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“Although oil-exporting countries have benefitted recently from high oil prices, they will still need funding in the medium- to long-term to meet their various strategies. However, oil-importing nations will need these sources of funding while global volatilities remain,” Al-Natoor added..

Whilst there will be a slowdown, demand for sukuk should stay intact thanks to Islamic banks–suku’s traditional investor–whose liquidity will be lifted by oil prices.

Furthermore, funding diversification plans across sectors, upcoming debt maturities, and maturity of the domestic debt capital market in certain countries will continue to propel sukuk issuance, Fitch said.