DUBAI: The issuance of sukuk, or Islamic bonds, is anticipated to slow down in the third quarter of 2023 before experiencing a resurgence towards the end of the year, as noted by Fitch Ratings.
The anticipated lull is primarily attributed to the summer holidays, which typically see a reduction in market activity.
However, the Islamic bond market is predicted to gain momentum between October and December, driven by several critical factors.
Key among these factors is the expected reduction in interest rates and lower oil prices, which are likely to foster an environment conducive to increased sukuk issuance.
The forecasted rate cuts by the US Federal Reserve are expected to stimulate the market, providing an impetus for issuers to enter the market.
Additionally, the ongoing funding needs of various Gulf Cooperation Council (GCC) countries, coupled with broader goals around diversification, refinancing, and addressing budget deficits, will further contribute to the expected uptick in activity.
Certain markets may exhibit less activity
According to recent reports, total sukuk issuance $91.9 billion in the first half of the year, up slightly from last year’s $91.3 billion recorded in the same period last year.
S&P has maintained a forecast for global sukuk issuance in the range of about $160 billion-$170 billion for the year, reflecting stable market performance.
Nonetheless, it is important to highlight that certain markets may exhibit less activity in the fourth quarter.
Countries such as Qatar and Oman are currently focused on deleveraging amidst government repayments, while Indonesia and Malaysia are adopting a more cautious fiscal approach that has led to slower issuance rates.
Among Islamic banks, efforts to diversify into sukuk will persist, though traditional funding sources, such as customer deposits, will continue to remain paramount.
Corporates are likely to rely heavily on bank funding; however, diversification efforts are anticipated to enhance sukuk activity in the broader market.
