Sukuk shake-up in the works? The normally steady Islamic bond market may be gearing up for a major overhaul as the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) reviews a proposal that could shift sukuk from asset-based debt instruments to equity-like, asset-backed ones, IFR reports.

Background: First proposed in November 2023, the draft for Sharia Standard 62 has been in the feedback stage, with the deadline extended twice — most recently to 31 July. There has been no update yet on a third extension.

What’s the difference? Currently, the structure of sukuk differs from bonds as they rely on an underlying asset, commonly real estate, to generate returns. The new standard, on the other hand, would give sukuk holders asset ownership, exposing them to risks like defaults. Investors would need to assess “the credit risk of the asset, rather than the credit risk of the obligor,” said Bashar Al Natoor, global head of Islamic finance at Fitch Ratings.

Issuers would also bear more risk: Issuers could face added costs from asset transfers and legal documentation, in addition to the fact that they tend to prefer retaining full control over their assets, according to a Baker McKenzie report. This shift could fragment the market or delay new sukuk issuances until a more balanced structure emerges, S&P said in a report.

Some markets could push back: AAOIFI’s standards are mandatory in countries like the UAE, Qatar, and Bahrain, but some markets might resist. UAE banks, with one of the largest sukuk markets globally, could reject the standard if it restricts liquidity access, IFR notes. This could also mean that the AAOFI’s guidelines could begin to be sidelined, with parallel markets emerging and the AAOFI potentially becoming obsolete, Mehdi Popotte, fixed-income portfolio manager at Arqaam Capital said.

GCC sukuk are having a moment: This comes as GCC sukuk are seeing their longest winning streak since early 2021, with 11 consecutive weeks of gains, according to Bloomberg’s GCC sukuk gauge. With expectations of a US Fed rate cut, investors are flocking to GCC bonds and sukuk, which have outperformed global bonds this year, the business information service reports.

MARKETS THIS MORNING-

It’s another mixed morning for Asia-Pacific markets — tracking similar movements over on Wall Street as investors prepare for the Federal Reserve to make a rate cut decision in its meeting today and tomorrow. Japan’s Nikkei is down 0.4%, while the Topix is down 0.3%. Meanwhile, markets in South Korea, mainland China, and Taiwan are closed for the mid-Autumn festival.

Wall Street futures were again flat, with the Nasdaq adding less than 0.1% and S&P 500 futures hovering near the flatline.

EGX30

30,260

-0.8% (YTD: +21.6%)

USD (CBE)

Buy 48.36

Sell 48.50

USD (CIB)

Buy 48.37

Sell 48.47

Interest rates (CBE)

27.25% deposit

28.25% lending

Tadawul

11,867

-0.3% (YTD: -0.8)

ADX

9,389

+0.4% (YTD: -2.0%)

DFM

4,395

+0.3% (YTD: +8.3%)

S&P 500

5,633

+0.1% (YTD: +18.1%)

FTSE 100

8,278

+0.1% (YTD: +7.1%)

Euro Stoxx 50

4,828

-0.3% (YTD: +6.8%)

Brent crude

USD 72.94

+1.9%

Natural gas (Nymex)

USD 2.37

+3.0%

Gold

USD 2,608.90

-0.1%

BTC

USD 57,855.20

-3.0% (YTD: +36.5%)

THE CLOSING BELL-

The EGX30 fell 0.8% at yesterday’s close on turnover of EGP 3.6 bn (6.9% below the 90-day average). Regional investors were the sole net sellers. The index is up 21.6% YTD.

In the green: Heliopolis Housing (+2.5%), E-finance (+2.4%), and Juhayna (+1.7%).

In the red: Egypt Kuwait Holding -USD (-3.7%), Emaar Misr (-3.3%), TMG Holding (-2.4%).

CORPORATE ACTIONS-

CI Capital will introduce a cash incentive scheme for employees, executive board members, and its subsidiaries after its board greenlit the move in principle, according to an EGX disclosure (pdf). The scheme will allocate 3% of the company’s fair value for the FY ending in 2025 and will be paid in EGP after 31 December 2025.

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