In 2017, the USD sukuk market expanded at its quickest pace in the past five years. As tracked by the Dow Jones Sukuk Total Return Index (ex-Reinvestment), which seeks to track U.S. dollar-denominated, investment-grade sukuk, the market added 13 new sukuk with a total par amount of USD 20.75 billion.
According to the index, sovereign sukuk contributed 75% to the issuance, including USD 9 billion from Saudi Arabia, USD 3 billion from Indonesia, USD 2 billion from Oman, and USD 1 billion from Hong Kong. Among the corporate issuers, the largest was IDB Trust, which raised USD 2.5 billion. For the country breakdown, 58% of the new issuances came from Saudi Arabia, followed by 14% from Indonesia and 12% from Oman.
Looking at the overall country exposure in the index, Gulf Cooperation Countries (GCC) remained the largest contributors, increasing their weight from 57% in 2016 to 65% in 2017. For the non-GCC countries, the three biggest were Indonesia, at 17%, Malaysia, at 10%, and Hong Kong, at 3%. Note that Turkey’s weight was reduced due to a change in methodology—the credit rating eligibility screening for sovereign bonds is now performed at the issuer level.
In terms of total return performance, 2017 returns showed similar trends as 2016. The Dow Jones Sukuk Total Return Index (ex-Reinvestment) rose 4.47% as of Dec. 29, 2017 (see Exhibit 1). The Dow Jones Sukuk Higher Quality Investment Grade Select Total Return Index, which seeks to track sukuk from specified countries of risk, gained 4.08% for the period. The S&P MENA Sukuk Index, which is designed to measure sukuk issued in the Middle East and African market, advanced 3.40%.
Among the ratings-based subindices, sukuk rated ‘BBB’ outperformed and rose 5.55%, while sukuk rated ‘A’ went up 4.97% in the same timeframe. The longer-maturity indices performed better than their shorter-maturity counterparts; the Dow Jones Sukuk 5-7 Year Total Return Index and the Dow Jones Sukuk 7-10 Year Total Return Index were up 3.98% and 7.36%, respectively.
Exhibit 1: Total Return Performance of the Dow Jones Sukuk Index Series