Monday 8th February 2016
NEWS TICKER: February 8th 2016: Thin and thinner news from Asia today as Chinese New Year celebrations take over from worries about falling stock markets. The focus today is all on Japan: the Bank of Japan released the notes backing its decision to introduce negative interest rates (see news story below). Japan's Nikkei Stock Average rose 1.1%, but is still down 12% from the beginning of the year and is still at 12.8 times this year’s earnings according to S&P Capital IQ. Thailand's SET was up 0.4%. India's Sensex is up 0.1% (essentially flat), while Australia's S&P/ASX 200 ended down 0.01%. Other markets in Asia were closed for the Lunar New Year holiday. The pace of the US Federal Reserve’s tightening on monetary policy still hangs heavy on the market, as last Friday’s jobs figures showed a 151,000 increase in jobs while insurance claims for joblessness stayed flat overall on the previous month. Contrast that with slower and still slowing growth in China, a nervous monetary policy from the PBOC, which is being steered rather than steering markets, still volatile crude oil prices (which can only get worse not better as inventories continue to rise), a collapsing market in Brazil, concerns about NPLs at Indian banks, and the threat of ever looser monetary policy in Europe and you can see why investors are running on empty. Crude oil prices remain sharply lower compared with several months ago, but the pace of falls might be easing. New York Mercantile Exchange, light, sweet crude futures for delivery in March traded at $30.86 a barrel, down three cents from the previous close. The words rock and hard place come to mind this week as the US Federal Reserve will have to steer a delicate monetary course. On the one hand an increase might help cool the economy (but that won’t help US stocks); but if it says that the reason it doesn’t raise rates is because of worries about the global outlook, it will shake investor confidence in the markets and trigger another round of sell offs. The other key trend has been the steadily appreciating US dollar. The US dollar has risen since Friday, factoring in perhaps the possibility of an additional rate rise. The dollar was at ¥ 117.28 in late Asia, up from ¥ 116.82 late Friday in New York. The euro was at $1.1139, down from $1.1160. We’ll find out midweek, as Federal Reserve chair Yellen will testify before Congress on the progress of monetary policy on Wednesday.

Latest Video

Malaysia offers tax breaks to secure dominance of sukuk issues

Wednesday, 23 May 2012
Malaysia offers tax breaks to secure dominance of sukuk issues Malaysia is offering tax breaks to issuers in an effort to secure its global dominance of Islamic finance. It seems to be working, there appears to be a record rally in foreign-currency sukuk. Moreover, arrangers say interest is increasing among local corporate issuers; with Standard Chartered claiming a growing issuance pipeline worth $1bn, most of which will be in foreign currency denominated bonds. http://www.ftseglobalmarkets.com/

Malaysia is offering tax breaks to issuers in an effort to secure its global dominance of Islamic finance. It seems to be working, there appears to be a record rally in foreign-currency sukuk. Moreover, arrangers say interest is increasing among local corporate issuers; with Standard Chartered claiming a growing issuance pipeline worth $1bn, most of which will be in foreign currency denominated bonds.

Malaysia is seeking to strengthen its lead over the Gulf Cooperation Council countries as a centre of Islamic finance. It hopes to become a capital markets issuance hub, and in an effort to secure its place in the pantheon of issuing markets has announced that it is exempting investors from capital gains taxes on non-ringgit sukuk between now and the end of 2014. It is a smart move, given that more Asian companies see sukuk denominated in currencies other than the ringgit as an effective funding strategy. Malaysia has become the world’s leading sukuk market, accounting for some 73% of the $92bn of sukuk issued globally last year; a banner year in which issuance volume rose by 68% on 2011. Malaysia is also the domicile for 68% of the $210bn total sukuk outstanding globally as at end-2011, according to recent figures issued by the Securities Commission in Malaysia.

Nonetheless, there is some way to go and sales of foreign currency bonds issued out of Malaysia have topped only $358m so far this year, compared with a grand total of $2.1bn for the whole of last year. The signs are that the Malaysian authorities have discounted this year for foreign currency denominated ringgit and have introduced a raft of initiatives in the hope of capitalising on better global market conditions in 2013 and beyond. Ringgit sukuk however continue to outstrip issuance in foreign currency.



Khazanah, the country’s sovereign-wealth fund alone, sold $358m of seven-year bonds convertible into shares at a negative yield in March alone. However, that was pretty much a plain vanilla deal for the issuer, which is rated A3 by Moody’s. Sukuk watchers may remember that the fund issued the first yuan-denominated Shari’a compliant notes in Hong Kong last year.

Corporate sales of ringitt denom­inated sukuk in Malaysia climbed 8% in the first quarter (compared with Q1 2011) to MYR13.4bn, after Tanjung Bin Energy raised MYR3.3bn in March in the biggest offering so far this year. Investor demand is also buoyant. A recent issue by Pembinaan BLT, the state-owned construction company, worth MYR1.35bn was over­subscribed 2.6 times.

Even so, the market infrastructure remains problematic and will likely dampen growth unless Malaysia can unlock key elements. Among them must rank a lack of secondary market liquidity; in particular the lack of secondary market trading. This is a problem of infrastructure and supply as well as a lack of formal trading mechanisms. Without an active secondary market liquidity and sustained fund manager participation in the market is not really feasible.

Once the Kuala Lumpur-based International Islamic Liquidity Management Corporation (IILM) is up and running properly, the resulting intermarket dialogue should spur member states and the central bank executives that represent them in the corporation should help (over the longer term) should help to mitigate this lack of market liquidity. The IILM is supposed to facilitate cross-border liquidity management among institutions offering Islamic financial services by making available a variety of Shari’a-compliant instruments, including sukuk, on commercial terms, to suit the varying liquidity needs of these institutions. The IILM, of which the Saudi Arabian Monetary Agency (SAMA) is a founding member, is due to launch its debut benchmark sukuk within the next two months. Some $3bn of issuance is expected to originate out of the IILM each year.

For now, Malaysia is managing to retain the initiative and remains the most developed systemic Islamic financial market and an active secondary trading market. However, it is not the largest liquidity pool in Islamic finance; that honour goes to Saudi Arabia, which is potentially the largest sukuk origination market; though again, local infrastructure limitations are apparent. Very few sukuk, for instance, are traded on the Tadawul and the market remains firmly domestic.

According to the latest data of the Securities Commission Malaysia, between 2000 and 2010, the First Capital Market Masterplan period, the local Islamic capital market more than tripled in value to MYR1.05trn, growing at an annualised rate of 13.6%. The Second Capital Market Masterplan, or CMP2, which spans the ten-year period to 2020 (please refer to FTSE Global Markets, Issue 57, pages 55 to 60 for more information), expects Malaysia’s Islamic capital market to grow by an average 10.6% a year, to reach just under MYR3bn by 2020, of which sukuk segment will account for 46% of the total.

Current Issue

Related News

Related Articles

Related Blogs

Related Videos