Saudi sukuk are going from a local asset class to global benchmarks

Saudi Arabia’s SAR-denominated government sukuk are graduating to global benchmark status, marking a structural shift in how global money relates to Saudi paper. The admission of the sukuk to JPMorgan’s Government Bond Index for Emerging Markets (GBI-EM) and Bloomberg’s EM Local Currency Government Index in the first half of next year is expected to draw in over USD 10 bn in foreign inflows, potentially lowering borrowing costs for the state in the process.

Saudi government debt joining the indexes means that it is “no longer optional for global investors. It’s now part of the standard benchmark,” senior investment banker Mustafa Fahim tells EnterpriseAM. “It brings in a much more diverse group of buyers, which helps lower the cost of borrowing for everyone.”

How realistic is that USD 10 bn figure? It’s “very realistic,” Fahim says, pointing to the sukuk being weighted at 2.52% in GBI-EM. Passive funds will be near-automatic buyers, but the bigger prize is active managers overweighting Saudi paper, which depends on yields outpacing US returns — a growing likelihood as global rates ease — and continued trading-infrastructure upgrades.

The headline number “can be attracted within the first couple of years subject to normal market conditions,” Nizwa Bank’s Treasury and Global Markets head Muhammad Ihsan tells EnterpriseAM.

The plumbing is ready: The inclusion follows a multi-year overhaul of trading and settlement infrastructure, including the expansion of a primary dealers program to include international banks, an over-the-counter settlement framework introduced in mid-2025, and stronger links with international central securities depositories.

Will regional noise weigh on sentiment? “Saudi Arabia is viewed as a safe bet within emerging markets,” Fahim tells us, with the index inclusion itself providing a structural buffer against global risk-off episodes. Ihsan is more measured, noting that any emerging market is exposed to inflows being “negatively affected” in a global risk-off, but a strong domestic investor base limits the damage.

A stronger starting line: The Kingdom enters with a higher credit rating than most index peers and a USD peg that removes currency risk, Fahim notes. Ihsan, meanwhile, sees a path to becoming a heavyweight in the EM local currency universe, but it could take a few years. “The Saudi market could easily become comparable to EM giants like Mexico or Malaysia, with foreign investors reaching well above one-third of the local market size,” he says.

The remaining gap: corporate issuance. “The biggest challenge is that most of the market is still government bonds,” Fahim says. Attracting long-term international players will need more debt issuances from private companies. “We need a wider variety of options beyond just government projects so that investors can spread their risk across different sectors of the economy,” he adds.

The index inclusion itself as part of the fix, Ihsan argues, as it “drives foreign demand while local currency markets attract interest,” helping market breadth and encouraging more issuers to tap the local currency market.