Market Pressured by ‘Trumpflation’ Risk; Oman on Negative Radar by S&P

14 November 2016

Global Sukuk Markets Weekly

Market Pressured by ‘Trumpflation’ Risk; Oman on Negative Radar by S&P

Highlights & Performance

¨   Bloomberg Malaysia Sukuk Ex-MYR Total Return (BMSXMTR) and Dow Jones Sukuk Total Return (DJSUKTXR) index closed weaker at 105.0 (-0.58%) and 162.7 (-0.57%), with the index yield rising to 2.588% (+11.6bps) along with expectations of a rotation in US policy mix and higher inflation risk premium after Trump’s presidential election victory. The lower indices were led by losses in DARALA 5/18-5/19 (+35-53bps to 7.04-7.99%), SIMEMK 1/23 (+39bps to 3.75%), AXIATA 11/20-3/26 (+31-39bps to 2.62-3.81%) and PETMK 3/20 (+34bps to 2.47%).

¨   Elsewhere, Aldar Properties (Baa3/BBB/NR) reported a 15.5% YoY increase in net profit to AED737m amid high occupancy rates at Yas Mall and across its office and residential properties, with its ALDAR 12/18 widening 9bps to 2.31%. Emaar Properties (Baa3/BBB-/NR) reported a 3Q16 net profit of AED1.1bn (+36% YoY) due mainly to significant growth in property sales in Dubai. EMAAR 7/19-9/26 were seen last traded at 2.64-3.93% (+11-17bps).

¨   Malaysia’s 3Q16 GDP growth picked up at 4.3% from 2Q16’s 4% on continued expansion in private sector spending and additional support from net exports. Current account widened more than consensus expectation at MYR6.0bn, reflecting larger good surplus which more than offset the deficits in the services and investment income accounts. Continued expectations of a growth pick-up, and the current weaker MYR (in contrast to MYR strength preceding the July OPR cut) may now favour a wait-and-see approach at the 23 Nov MPC meeting.  On the other hand, Indonesia’s GDP growth eased in 3Q16 to 5.0% from 5.2% in 2Q16, led by contractions in exports (-6.0%) and government consumption (-3.0%). The key 7-day reverse repo rate is expected to stay unchanged at this Thurs policy meeting amid Trump-related market jitters.

¨   Moving to ratings, S&P revised Oman’s outlook to negative from stable premised on expectations of longer-than-expected fiscal consolidation and greater external debt against liquid external assets, despite being rated two-notches below the Moody’s rating of Baa1/Sta.

SOVEREIGN/CORPORATE UPDATE

Country/Issuer	Update	RHBFIC View
Saudi Arabia	·    A decree has been mandated for payments of up to SAR100bn (USD26.7bn) to be paid to the private sector which has been delayed for several months. The funds will come from budget surpluses accumulated from previous years.	Mildly Negative. We opine that this development exceeds expectations of the budget deficit, where initially the budget plan for 2016 was SAR326bn after a record deficit of SAR367bn in 2015. Nonetheless, given the additional SAR100bn we expect that the fiscal deficit may be higher than the forecasted 13% of GDP in 2016 (2015: 15.9%). In a scenario where this debt repayment exercise is purely funded from the current budget, this would bring the fiscal deficit to c.17%* in 2016. Nonetheless, despite funding coming from budget surpluses in previous years, we still anticipate a higher deficit estimate in the upcoming 2017 budget announcement late December.

*based on 2015 estimated nominal GDP*based on 2015 estimated nominal GDP