After a strong year for the Islamic bond market in 2017, this year is looking more uncertain amid geopolitical risks and economic uncertainties, according to S&P Global Ratings.
Islamic bonds, or sukuk, saw strong issuance last year at $97.9 billion, up 45.3 percent from the $67.4 billion issued in 2016, according to data from the ratings agency.
So-called "jumbo issuances" were seen in Saudi Arabia and other Gulf Cooperation Council (GCC) economies in 2017, whereas 2016 saw Islamic-majority Malaysia issue the most sukuk.
Sukuk is a form of financing that follows Islamic principles, making sure that the debt issuance is structured in a way that is Sharia compliant. It is used by Islamic governments and companies predominantly but is being opened up to retail investors.
Islamic religious law prohibits the earning of interest (which is seen as a form of usury) so traditional western bonds are not acceptable. Instead, Islamic bonds give investors a share in the ownership of an underlying asset rather than the ownership of debt and interest payments, as with conventional bonds.
Mohamed Damak, a senior director of financial services at S&P Global Ratings, said the first two months of 2018 had been marked by a good performance for local currency issuance and a drop in foreign currency issuance.
Still, Damak said that monthly performance was not a good indicator of annual issuance numbers and that 2018, as a whole, was expected to see a drop in sukuk issuance, with expectations for around $70-80 billion in total.