Commentary by RHB Global Sukuk Markets Research, Kuala Lumpur, Malaysia

Weekly Sukuk Recap

Marginal gains of 0.05%-0.06% and 0.6bps tighter yields this week. The Bloomberg Malaysia Sukuk Ex-MYR Total Return (BMSXMTR) gained 0.06% over the week to close at 101.65 (week prior: +0.11% to 101.59). Similarly, the Dow Jones Sukuk Total Return Index (DJSUKTXR) rose 0.05% to 155.42 (week prior: +0.11% to 155.35), leading YTD gains up +5bps to 1.91% (week prior: +11bps to 1.87%). BMSXMTR yields inched 0.6bps narrower to 2.269% (week prior: -1.5bps to 2.275%) with gainers led by SECO 8/24, SECO 3/22, MALAYS 6/21, KFINKK 06/26/19, and SECO 8/23 gaining USD15.2m in value.

CDS spreads widened, save for Dubai on oil subsidy reforms

Risk aversion led to a wider CDS spreads for major sukuk markets, except for Dubai (which tightened 0.7bps to 180) as it will be removing fuel subsidies effective 1st August to bolster the impact of lower oil prices on its fiscal account. Evident widening was seen for Malaysia (+14.5bps to 145) following lower reserves and cabinet reshuffling; Turkey (+12.2bps to 239) from simultaneous offensives against Islamic State and Kurdish militants; and Indonesia (+11.6bps to 183) after printing EUR1.25bn 10y bonds despite raising tariffs on imports, including cars (+50%) and motorcycles (+30-40%). Elsewhere, spreads widened moderately (by 1-6bps).

Bidding skewed towards short-dated corporate sukuk.

DAMAC 19 remained in the limelight as yields tightened 36bps WoW to 6.27%, as the HY issuer is believe to benefit from an increasing development order book to meet a residential shortage in Saudi Arabia. Meanwhile, sovereigns underperformed as seen by PKSTAN 19 (yield +23bps to 6.12%) after consumer confidence index dropped to 150.2 (prior: 166.7) and trade deficit widened 3.4% to US2.38bn in June; MALAYS 25 (+9bps to 3.22%); and TURKSK 18 & 24 (+8bps to 3.02% & 4.81%). FIs were mixed with ADCBUH 16 widened 12bps to 1.44%; while Turkey-based KFINKW 16 & 19 tightened 11 bps & 9bps to 2.43% and 3.82% respectively.