The Middle East's recent surge in sukuk sales could fall victim to the bursting of a bubble in emerging market debts, according to the London-based private bank Coutts.
The bank, part of Royal Bank of Scotland, is recommending a switch towards equities and other assets less vulnerable to a sharp withdrawal of investment.
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"There's a correction coming," said Gary Dugan, the bank's chief investment officer for Asia and the Middle East. Investors should "beware in the Middle East of a significant sell-off in sukuk, [where] a lot of leakage from emerging market bond funds is looking for further sources of returns".
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Islamic bond sales, which comply with a Sharia ban on charging interest, had a record year in 2012 as companies sought to lock in cheap interest rates.
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Banks raised US$21.2 billion (Dh77.87bn) in sukuk debt for borrowers across the Arabian Gulf, including the Dubai Government and local family-owned companies such as Majid Al Futtaim Holding, while the HSBC/Nasdaq Dubai US Dollar Sukuk Index rose 9.6 per cent during the year. The index has fallen 0.2 per cent so far this year, in spite of a substantial rally on global financial markets.
Read more: http://www.thenational.ae/thenationalconversation/industry-insights/finance/burst-bubble-fears-on-middle-east-sukuk-sales#ixzz2K9zfi9CR
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