The market for sukuk, or Islamic bonds, looks set to enjoy another year of expansion, but some investors are planning to reduce their allocations to the asset class which could push yields higher, a study by Thomson Reuters showed.
Demand from investors in the Gulf and Southeast Asia continues to exceed supply, an imbalance which has helped drive down yields for sukuk at issue, making them an appealing funding source for corporates and sovereigns.
Sukuk are investment certificates which follow religious principles such as bans on interest and monetary speculation.
This year the market has attracted debut issuers such as Hong Kong, Britain, Luxembourg and South Africa, while emerging market issuers are poised to join as well.
However,the market’s dynamics could start to change next year, according to the report’s survey of investors and sukuk arrangers conducted during July and August.
Out of 105 investor respondents, nearly half said they expected to allocate between 5 per cent and 25pc of their portfolios in sukuk.
This is lower than last year’s findings, when on average investors said they would allocate between 25pc to 35pc in sukuk.