Sukuk issuances are expected to be higher in Q4 2023 quarter-on-quarter, although regional geopolitical volatilities may impact sentiment and appetite towards sukuk and bonds in emerging markets and the Middle East, Fitch Ratings said in a recent report.

“We expect Q4 2023 to be a busier issuance window than Q3 2023, with few first-time sukuk issuers likely to participate,” the report said.

In Q3 2023, $51.7 billion of sukuk were issued in GCC, Malaysia, Indonesia, Turkey and Pakistan (including multilaterals), which was 12.3% lower year-on-year (YoY) but at the same level as Q2 2023.

In the first nine months of 2023, $154.6 billion total sukuk was issued across all markets (all currencies), down 24.7% YoY. Moreover, US dollar sukuk issuance in 2023 is expected to outpace 2022 issuance.

Fitch said that GCC banks are among key sukuk investors and issuers, as they benefit from strong operating conditions, high oil prices, contained inflation and rising interest rates.

In the near term, the rating agency expects sukuk issuance to be supported by budget deficits in countries such as Malaysia, Indonesia, Turkiye, Bahrain, Kuwait, and Pakistan.

“We expect sukuk issuance to be supported by funding diversification initiatives, aim to develop the Islamic finance ecosystem and the local debt capital markets,” Fitch said.

Despite a budget surplus in the near term, the UAE, Qatar and Oman will support the market, the report added.

(Editing by Brinda Darasha; brinda.darasha@lseg.com)