Indonesian sukuk lead October rally
INDONESIA'S global sukuk led the world this month, returning almost four times as much as Malaysian notes, as an improving current-account outlook boosted investor confidence.
The nation's 3.3 per cent dollar-denominated Islamic bonds maturing in 2022 rallied 6.7 per cent this month, paring this year's loss to 13.6 per cent.
That was more than twice the 2.4 per cent gain by the second-best performer, Turkey's March 2018 debt. Bahrain's 2018 sukuk advanced two per cent, while Malaysia's notes due 2021 returned 1.7 per cent.
Indonesia's trade balance returned to surplus for the first time in five months in August as import demand was curbed by 1.5 percentage points of interest-rate increases since mid-June and a weakening rupiah. The current-account deficit will shrink to 2.5 per cent of gross domestic product next year, compared with a record 4.4 per cent shortfall in the second quarter of 2013, Credit Suisse Group AG said this month.
"Investors are expecting the current-account deficit to improve next year so the market is starting to price that into the yields," Akbar Syarief, a fund manager at PT MNC Asset Management who oversees about US$485 million (RM1.53 billion), here, said last Friday. "The big correction in the past few months has made Indonesia's sukuk cheap."
The yield on Indonesia's syariah-compliant bonds due November 2022 has fallen 1.85 percentage points to 5.18 per cent from a record high of 7.03 per cent on September 4, data compiled by Bloomberg show. The debt offers a yield premium of 266 basis points over 10-year Treasuries and 1.57 percentage points over Malaysia's global sukuk due 2021.
The spread for the 2022 Indonesian notes over Treasuries will probably narrow to 180 basis points by the end of the year, according to Ernawan Rahmat Salimsyah, the chief investment officer at PT Indo Premier Investment Management, a unit of the nation's top sukuk underwriter.
"Indonesia's yields look relatively compelling considering the economy is set to improve," Ernawan said last Friday. Bloomberg