Saudi, Qatari And Kuwaiti Sukuk Lead Gulf Liquidity Arabian Post

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Arabian Post Staff -Dubai

Sukuk issued in Saudi Arabia, Qatar and Kuwait were the most liquid among Gulf Cooperation Council markets in early November, Fitch Ratings said, despite a temporary disruption linked to Houthi attacks in late October.

The three countries recorded an average liquidity score of about 57 on a 100-point scale, placing them ahead of other GCC issuers covered by the ratings agency. Trading conditions subsequently recovered from the late-October disturbance, although liquidity remained below levels recorded in January, before the Iran conflict.

Fitch said liquidity across its rated sukuk universe had been broadly stable since August, but the recovery from a sharp deterioration in March remained incomplete. Its average score stood at 62 on November 2, unchanged from October 1, compared with 64 in August and 68 in January.

The agency's assessment highlights the continuing influence of geopolitical tensions on the market for Islamic debt securities, even as the immediate impact of the October attacks subsided. Fitch expects liquidity to remain sensitive to regional instability, elevated interest rates and movements of capital from emerging markets towards developed economies.

The measure is based on Bloomberg Liquidity Assessment scores, which estimate the cost of selling individual securities using trading volume, transaction costs and time. Scores range from one to 100, with higher readings indicating lower estimated liquidation costs. Fitch excluded locally rated sukuk and calculated its averages by instrument count.

Across Fitch-rated instruments, 69 per cent scored above 50 on November 2, compared with 64 per cent at the March low and 81 per cent in January. The median score reached 61, up from 55 in March but below the January reading of 68.

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Credit quality remained a major dividing line. Investment-grade sukuk achieved an average score of 67 in early November, compared with 35 for speculative-grade instruments. The corresponding January scores were 72 and 48, showing that neither group had regained its earlier liquidity levels.

Higher-rated instruments carrying AAA and F1sf ratings registered the strongest liquidity scores, while sukuk in the A rating category recorded the largest improvement between October and November. The findings suggest that the ability to sell holdings at relatively low cost continues to differ substantially across credit categories.

Geographical differences were also pronounced. Sukuk from Hong Kong, Malaysia and Indonesia, alongside securities issued by supranational institutions, recorded average scores ranging from 69 to 95. Fitch found that sukuk from Association of Southeast Asian Nations markets were generally more liquid than those issued across the GCC.

Turkish and Egyptian sukuk recorded scores of approximately 50. Turkish instruments slipped slightly below their March reading, whereas Egyptian securities remained above that month's level, reflecting differing recovery patterns outside the Gulf.

Sector comparisons placed asset-backed sukuk at the top of the liquidity rankings. They were the only sector to exceed pre-conflict levels, followed by supranational and sovereign instruments. Sukuk issued by property developers in the United Arab Emirates had the lowest liquidity scores within Fitch's coverage.

The agency found that investment-grade environmental, social and governance sukuk in GCC markets had liquidity broadly comparable with non-ESG investment-grade sukuk. The comparison concerned trading liquidity rather than the environmental performance or credit risk of individual issues.

Currency also affected the results. Malaysian ringgit-denominated sukuk remained the most liquid and continued to outperform their pre-conflict readings. Euro-denominated sukuk achieved a score of approximately 81, while local-currency sukuk in GCC markets were generally more liquid than comparable conventional bonds.

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Fitch's wider market data covered more than $950 billion of outstanding sukuk with Bloomberg liquidity scores. About 84 per cent of that market by value scored above 50, while only 2.5 per cent fell below 25. These figures cover a broader universe than Fitch-rated instruments alone.

The broader figures provide an additional perspective on market conditions because they measure outstanding value rather than the number of securities. Consequently, they cannot be directly compared with the average liquidity readings for Fitch-rated instruments. The distinction is important when assessing whether improvements are concentrated in larger issues or distributed across the market's individual securities.

By remaining maturity, sukuk due within one year and those with at least 10 years left to run recorded the highest liquidity scores. The largest share of outstanding value, 11.1 per cent, fell within the 85-to-90 score band, followed by 10.3 per cent in the 55-to-60 range.

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