According to a recent analysis, regional Sukuk are supported in the medium run by the favourable oil market dynamics and the macro-outlook for the GCC. As per the Azimut Middle East Annual Global Sukuk Outlook 2023, the “issuer fundamentals should continue to rise on the back of stronger economic, fiscal, and external prospects.”
“Ample regional liquidity should be another source of support for GCC Sukuks as local investors will look to deploy surplus cash in local financial products. In our view, high absolute yields on fixed income Sukuks makes the asset class more attractive for investors than in previous years.”
The Middle East’s oil producers have benefited from increased oil prices since the start of the war in Ukraine; the IMF predicted last year that they would get a windfall of up to $1.3 T over the following four years. According to Azimut, Middle East fixed income should also profit from favourable technical factors because investors from around the world would likely overweight the region due to its favourable macroeconomic dynamics, which are demonstrated by its high fiscal and current account balances.
Although increasing oil prices and output, together with the opening up of economies, bolstered economic development in the GCC in 2022, the report said that when OPEC oil production increases are reversed, growth is anticipated to decline. Despite the fact that higher oil prices and production, according to Zawya, along with the opening up of economies, boosted economic growth in the GCC in 2022, the report noted that growth is likely to moderate as OPEC oil production increases are reversed.
Despite diversification efforts, oil revenues remain vital to GCC economies accounting for the bulk of government revenues and exports. “We believe oil will continue to trade at much higher levels than previous years due to proactive management of supply/demand balance by OPEC+ countries. Second, we believe an increase in US shale production remains unlikely in the medium term, due to a number of financial, regulatory and supply-related constraints.”
