Sukuk bonds: Where the smart money is headed?

In today’s upside-down economic environment, tepid stock markets and negative interest rates in parts of Europe and Asia mean that neither equities nor bonds has provided the kind of performance many would like. Where can one look for an acceptable return? The answer may be sukuk bonds. Global dollar sales of sukuk climbed to $14 billion this year, a record for the period. Issuance over the past several years has grown to meet the demands of not only Muslim investors in Gulf Cooperation Council (GCC) nations and parts of Asia, but also institutional investors in the developed world. This unconventional instrument, which behaves in ways similar to a conventional bond in terms of payment priority but has an Islamic structure, is now basking in the spotlight as more conventional players start to pile in. Commodities help sukuk issuances Increased attention paid to sukuk can be traced back to the recent drop in commodity prices. Export-oriented countries in need of U.S. currency to manage widening current account balances are often forced to borrow in dollars. That means more dollar-denominated sukuk issuances from those countries. Because of a flood of sales, yields have climbed in recent months to entice buyers. According to