Islamic Bonds Worth $27.5 Billion to be Issued in 2009, Says Ernst & Young

Filed on May 27, 2009

DUBAI - Although Islamic investment funds face bigger risks this year due to the global economic crisis, new issues of Islamic bonds, or sukuks, are likely to rise by 56 per cent from last year, financial services firm Ernst & Young 
said on Monday.

Shariah-compliant investment assets grew nearly three-fold to $736 billion in 2008 from $267 billion in the previous year, but investment growth may stall this year as large sums committed to financial instruments such as equities have been affected by the slowdown, Ernst & Young said in a report on Islamic Funds & Investments.

“The business risks landscape for Islamic asset management has changed substantially since 2008. Revisions of expected returns have caused some investors to withdraw capital, while previously robust business models have struggled to cope with extreme market events,” said Sameer Abdi, head of Ernst & Young’s Islamic Finance Services Group. “The economic downturn, a reduction in investor risk appetite, and unclear valuations will be the most pressing business risks in 2009.”

The report showed declining returns from Islamic funds. The average return from Islamic equity funds fell by 39 per cent in 2008 compared to a 23 per cent return in 2007. The average Islamic fixed-income fund return dropped from 3 per cent in 2007 to 1 per cent in 2008 and in the first quarter this year.

Meanwhile, Ernst & Young predicted that Islamic bonds worth $27.5 billion would be issued in 2009. Worldwide sukuk issuance slowed last year as spreads widened, with issuances of $15.5 billion in 2008 down sharply from the $47.1 billion in sukuks issued in 2007.


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