Global sukuk issuance set to extend recovery: Fitch

KUALA LUMPUR: Global sukuk issuance may extend its recovery into the third quarter of 2026 (Q3 2026) based on cross-sector funding needs and sustained demand from Islamic investors, said Fitch Ratings.

Fitch expects the US Federal Reserve to implement a 25 basis point rate hike in December which will prompt entities to issue before funding costs rise.

"Global sukuk issuance has regained momentum in Q3 FY26, and we expect the pipeline to remain supportive through year-end.

"However, geopolitical volatility and higher rates may weigh on market sentiment, along with issuers and investor appetite towards emerging market debt.

"Sukuk continues to show resilient credit quality overall, with over 80 per cent of rated sukuk being investment grade and over 80 per cent of issuers on stable outlooks," said Fitch global head of Islamic finance Bashar Al Natoor.

Sukuk reached 13 per cent of emerging market's US dollar debt issued in Q3 FY26, excluding China.

Global sukuk outstanding exceeded US$1.1 trillion, concentrated in the Gulf Cooperation Council (GCC), Malaysia, Indonesia and Turkiye.

It added that dollar sukuk issuance across core markets rose 58 per cent quarter on quarter to US$25.5 billion in Q3 FY26, while dollar bond issuance fell 25.9 per cent.

African sukuk exceeded US$7 billion outstanding while the first Fitch-rated Indonesian rupiah sukuk default occurred.

Meanwhile, yield spreads between GCC investment-grade sukuk and US Treasuries rose.

This reflects a geopolitical risk premium and volatility in US Treasury yields and emerging markets.

Fitch noted that the Saudi government intends to continue issuing sukuk in 2027. Kuwait issued a new sukuk law that could broaden access.

In Malaysia, the government issued a US$1.5 billion sukuk after five years while Pakistan appointed an international banks consortium to execute a sukuk programme.

The Philippines' central bank issued a draft circular relaxing and incentivising sukuk issuance and investment and Egypt plans to issue its first tax sukuk.