• 97.7 billion riyals, a market value added to the IBOX Tadawul Government Sukuk Index during 2020



    The main index of "IBOX Tadawul for Government Sukuk" added 97.7 billion riyals to its market value at the end of last year, supported by a 6.7 percent increase in the index and the new issuances of the Saudi government, which were listed on the Tadawul debt instruments exchange.
    Al-Eqtisadiah learned from government sources that Saudi Arabia decided to update the date of its monthly savings Sukuk issuances for the second year in a row so that the issuance becomes during Monday and the settlement becomes Thursday.
    Investors can view the updated offer dates via a dedicated page on the Bloomberg platform, known as DMSA, while this decision will be activated with the January offering of this month, which is expected to take place within the next few days.​
    In the past, the date of the offering was Wednesday and the settlement was Monday, and employees of the treasury departments of banks, as well as investment institutions, need to know early the date of the offering in order to allocate the required amounts in light of the low allocation rate and intense competition among investors for government issuances.
    The economic reform package directed at fixed income markets during the last period, coupled with the entry of investment products targeting Sukuk and expanding the investor base, contributed to increasing the demand for government fixed income instruments.
    The "IBOX Tadawul of Government Sukuk in Saudi Riyals" index, which tracks the performance of 38 issues and includes eight sub-indices of varying duration, ended last year with a market value of 281.4 billion riyals, compared to its market value during early last year at 183.7 billion riyals, according to IHS Markit platform data. Owner and operator of the global IBOX indexes series.

    The "IBOX Tadawul for Government Bonds and Sukuk" index ended last year with a market value of 320.9 billion riyals for the 57 sukuk and bonds whose performance is tracked, knowing that this index had added 43.8 billion riyals to the market value by the end of December, compared to its value in early February of last year, which was At 277 billion riyals.
    The monitoring of the "economic" reports unit showed that the highest market value recorded by the measurement index was on September 14, after reaching levels of 337.9 billion riyals.
    In addition, it is expected that the vision will become clear during the next ten days about the fate of two issuances (from local bonds and government murabaha) due to maturity on January 26th, as data from the "Fact Set" financial services platform indicate that the value of the two issuances together amounted to 1.8 billion riyals.​
    The newspaper was unable to know whether these two issues will be made to last towards the expiry of their maturity dates, according to the specified date, or other options such as the early purchase of the bonds and their replacement with Sukuk will be considered.
    FactSet has one of the most popular financial analysis platforms that the global investment community uses to evaluate securities and build investment decisions.​

    Uneven market value
    The discrepancy between the increase in the market value between the two indicators is due to the fact that one of the measures the performance of government bonds, which have undergone fundamental changes after canceling the listing of several of them.
    In contrast, several new issues were added last year to the government Sukuk benchmark. It is noteworthy that the debt instruments (from public offerings), which will mature in 2021 (worth 23.8 billion riyals), are the lowest 43 percent of the total value of the five-year bonds whose maturity date last year, totaling 42.3 billion riyals (and it was within the program Early purchase of development bonds, launched by Saudi Arabia in 2020 and included four bond debt instruments).
    This followed in late December of 2020 when the Saudi Stock Exchange (Tadawul) announced that it is a reference to the request submitted by the Ministry of Finance regarding changes in debt instruments issued by the government. A total of one billion riyals to expire.
    The number of listed savings Sukuk is 39, according to the "Cbonds" financial data platform, at the end of December 2020.​

    Debt instruments performance in December
    The series of nine indicators for "Epox Tadawul for Government Sukuk" rose at the end of December amid indications of the continued momentum of increasing secondary trading volumes during the coming period, and local investors headed towards safe investments that offer constant periodic returns that do not change with economic conditions, as well as the attractive return of these securities. Financial in light of the continuous decline in the rates of return on loans (priced at variable interest, which follows the movement of SIBOR).
    Thus, the savings Sukuk become the most important safe havens that have surfaced recently, and those ten indicators achieved gains of 9.6 percent to 4.5 percent by the end of the 12 months of 2020, according to the monitoring of the "economic" reports unit.​
    The main index is still recording a level close to its highest levels, which were recorded in early November 2020 (when it closed at 110.23 points), supported by the resumption of economic activity in the late first half, which is a positive thing amid the Coronavirus pandemic, which affected the global economy.
    The main index jumped by 6.7 percent to close at 109.65 points by the end of last month, supported by the strong performance of three indicators that measure the performance of Sukuk under five years, after the decline in the performance of long-term Sukuk for the second month in a row.
    The index, which measures the performance of debt instruments with maturities that are higher than ten years, (such as the 12- and 15-year-old Sukuk and their 30-year counterpart), which are characterized by high yields, settled at single-digit gains of 9.6 percent.
    As for the Sukuk, in which the assets of investment funds are concentrated in Saudi Arabia, the index, which has maturities from "three years to one year" and its counterpart from "five years to less than a year", closed with gains of 4.5 percent and 5.3 percent.
    The index of “less than a year” benefits closed without any change, due to not being activated yet.

    The number of bonds decreased
    The monitoring of the "economic" reports unit showed that the total listed bonds denominated in riyals, to 28 issues by the end of last year, compared to 33 issues at the end of May.
    These figures mean a 15 percent decline in the existing bonds of Saudi Arabia after investors preferred to switch to savings bonds.
    The decrease in the number of these issues comes due to their maturity dates. Last week, the Saudi Stock Exchange (Tadawul) announced that it is a reference to the request submitted by the Ministry of Finance regarding changes in debt instruments issued by the government. Issue No. 5-1005 has been canceled (Tadawul code: 5235) with a total expiry of one billion riyals.
    Al-Eqtisadiah's monitoring of the total Saudi issuances listed in the local and international market was based on data obtained from the "C-Bonds" platform, whose platform workers in fixed income markets use to track the movement of global credit market indices, as well as evaluate the performance of bonds, In which they invest.​

    More indications
    It is known that the Saudi Stock Exchange Company (Tadawul) launched, during the first half, officially eight "sub" indicators to measure the performance of sovereign debt instruments from Islamic bonds. These sub-indices should be attached to the main index known as the "IBOX Index of Government Sukuk Trading in Saudi Riyals".
    This was followed by the launch of the tenth index, which covers bonds and is known as the "IBOX Tadawul Index for Government Bonds and Sukuk". In order to provide multiple options for investors, two versions of these ten indices have been created, to including the first category “CPI-free price index” and the second category “total return index, which includes the retained earnings TRI”. That is, the first category of the index means that the performance of the index will not take into account the periodic distributions that investors will receive from the distributions of fixed income instruments, which they will use for other purposes. While the second category takes into account the reinvestment of periodic dividends at the index price.​

    Mutual funds management strategy
    Apart from serving as a gauge of market performance and volatility, the “Epox Tadawul Government Sukuk Index” series also represents an important role in both active and inactive fund management strategies. An actively managed fund (the fund that aims to outperform the market) uses the index as a benchmark to measure performance, while passively managed funds, also known as "inactive indices" or "index tracking" funds, use indicators to track a specific market (or asset class). ) As much as possible in the request to try to replicate the performance of the indicator.
    The indicators are periodically reviewed on a quarterly basis (February, May, August, November and the last day of the Gregorian calendar), because they help reduce the cost of operations for fund managers, who follow this indicator.​
    As for the risks of inactive management of funds, they lie in simulating and matching the performance of the specified benchmark, which may result in the possibility of the fund maintaining one or more components of the index regardless of the change in market conditions or the feasibility of investing in those components, which may negatively affect The performance of those funds.
    Most of the strategy of specialized funds in investing in savings Sukuk lies in investing in Sukuk, which have a maturity period of one month to five years from the date of their addition to the index and are listed in the main market.
    The "IBOX Tadawul of Government Sukuk in Saudi Riyals" index series provides transparency to the performance of the Saudi government Sukuk market in the Saudi local currency.

    It is part of the main tools for active and passive investment managers, and these indicators can be used by securities dealers, ETF issuers, buy-side investment companies, and external parties to measure portfolio performance and risk.
    ETFs linked to the “IBOX Tadawul Government Sukuk Indexes in Saudi Riyal” series can provide a cost-effective and transparent way to identify the various Saudi government Sukuk markets. Instead of purchasing multiple Sukuk, investors can purchase units of one index fund actively traded in the financial market. Saudi.

    Indicators as an indicative standard
    The index is defined as a statistical measure, usually from a price or quantity, and is calculated from a representative set of basic data. The most common role of the index is as an indicative standard, and it can be described as the standard by which the performance of the financial instrument can be measured. An index is a method for measuring the performance of a specific segment of the financial market, such as comparisons within a geographic region, an industry sector, or other assets.
    The Sukuk and Bond Index is used to measure the value of a part of the Sukuk and bond market, and it can be defined by specific characteristics such as maturity or credit rating to represent a narrow segment of the market. For example, the "IBOX Tadawul Government Sukuk Index in Saudi Riyals" measures the performance in the market for government bonds issued in Saudi riyals.​
    Unique characteristics of Sukuk indices
    The role of Sukuk and bond indices is to provide a means to overcome the complexities of the Sukuk and bond market. Investing in an index fund, which tracks the Sukuk and bond index, removes the challenge of having to choose individual Sukuk or bonds. These indicators provide a broad overview of the Sukuk and bond market sectors (taking into account the range of characteristics of these Sukuk and bonds).
    For example, a Sukuk and bond index can provide investors with an opportunity to invest in multiple Sukuk and bonds through a single financial instrument.
    Sukuk and bond indices also allow for greater control over risk by giving investors the ability to adapt and potential exposure to risks.
    As is well known, the Sukuk and bond markets have a relatively complex nature. The emergence of new financial products made the task of measuring the performance of a particular group of Sukuk and bonds progressive for the asset management industry. Sukuk and bonds can differ in several ways, in terms of the asset class, type (government, institutional, or sovereign), loan term, and returns, and there can be many Sukuk and bonds for each source of debt, while stocks are limited to two types, normal and premium.
    In addition, Sukuk and bonds usually trade at a lower rate than stocks, a few deals can lead to a lack of liquidity in the Sukuk and bond market, and thus all of these factors contribute to reducing transparency​.

    Economic Reports Unit​


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