Singapore/Jakarta/Dubai: Yields on Malaysia's dollar-denominated Islamic bonds are trading near the lowest level in a month as investors favour the nation's assets over those in the Middle East amid escalating political violence.
The yield on the government's 3.928 per cent sukuk due June 2015 dropped 11 basis points last week to 2.89 per cent, according to prices from Royal Bank of Scotland Group. They were at 2.88 per cent on Tuesday and at 2.86 per cent at the beginning of the month.
Rates on Shariah-compliant debt from Petroliam Nasional, the state-owned oil and gas company, declined 7 basis points to 2.75 per cent.
Malaysia's economic growth rebounded last year from a recession in 2009 and Prime Minister Najib Razak has started a $444 billion (Dh1.6 trillion) spending programme to expand the transport system and invest in oil exploration projects. It's a "golden window" for local companies to take advantage of cheap funding costs to sell sukuk, said Chan Cheh Shin, the chief investment officer at Kuala Lumpur-based Asian Islamic Investment Management.
"The bright spots are still in Asia at the moment, in terms of exposure to emerging markets," Hang Tuah Amin Tajudin, Assistant Vice-President of Islamic Treasury at OCBC Bank, said in an interview from Kuala Lumpur.
"Malaysia is benefiting from the turmoil in the Middle East."
Sukuk in the six-nation Gulf Cooperation Council fell for a second week as Libyan leader Muammar Gaddafi vowed to crush dissent. Italian Foreign Minister Franco Frattini told parliament on Wednesday there are "credible" reports that 1,000 people have been killed. Uprisings have also erupted in Bahrain, Yemen and Morocco after presidents in Tunisia and Egypt were overthrown.
Average yields rose 11 basis points from February 18 to 5.99 per cent and have increased 70 basis points, or 0.70 percentage point, since the crisis erupted in Egypt on January 25, according to the HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index.
The extra yield investors demand to hold Dubai's 6.396 per cent sukuk rather than Malaysia's widened 19 basis points last week to 346, data compiled by Bloomberg show.
Concern that the protests in the Middle East and North Africa will disrupt oil supply drove the price of crude to $103.41 a barrel last week, the highest level since September 2008. Libya holds the largest proven oil reserves in Africa.
"Malaysia might see an increase in interest from the Middle East in relation to sukuk as people try to diversify or move away from credit risk in the region," Haissam Arabi, the chief executive officer at Gulfmena Alternative Investments in Dubai, said in an interview last week. "There will be a marked increase but nothing that signals a trend."