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Sovereign sukuk returns beating company debt

Sovereign Islamic bonds from Asia to the Persian Gulf are beating returns on corporate sukuk for the first time in three months as accelerating economic growth and rising oil revenue shore up state finances.

Government debt that complies with the religion’s ban on interest gained 1.7 percent so far this month, according to the HSBC/NASDAQ Dubai Sovereign US Dollar Sukuk Index, more than the 1.1 percent advance in bonds issued by companies.

The last time the sovereign notes performed better was in May, when they dropped 0.5 percent compared with a loss of 2.3 percent on corporate debt.

Malaysia’s Lembaga Tabung Haji fund, France’s BNP Paribas Investment Partners and Duet Mena Ltd. in Dubai forecast government debt will outperform until property prices in the Persian Gulf recover from a slump that prompted credit-ratings companies to downgrade corporate bonds. Average oil prices of $78 a barrel will support fiscal surpluses in the Middle East this year, Moody’s Investors Service said on Aug. 3.

“Investors prefer to hold sovereign debt because they are more comfortable with the ratings and market liquidity,” Hishamuddin Sohaimi, who helps manage about 26 billion ringgit ($8.3 billion) of assets at Kuala Lumpur-based Lembaga Tabung, said in an interview yesterday. “Property prices are unlikely to return to a 2008 peak soon.”

Shariah-compliant government bonds from the Gulf Cooperation Council members and Asia, particularly Malaysia and Indonesia, are likely to benefit the most as growth quickens, said Rafael Martinez Dalmau, director of Islamic investment at BNP Paribas Investment, which oversees $700 billion and is the asset management unit of France’s biggest lender.

The GCC nations are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

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