Global Sukuk liquidity remains below pre-war levels despite recovery: Fitch

KARACHI (Staff Report): Global sukuk market liquidity has recovered from its March 2026 low but remains below levels recorded before the Iran conflict, highlighting the continued impact of geopolitical uncertainty on Islamic debt markets, Fitch Ratings said.

According to Fitch, the average liquidity score of all rated sukuk stood at 62 on November 2, compared with 55 on March 23 and 68 on January 30, indicating that the market has yet to regain its pre-conflict liquidity position.

The ratings agency said liquidity conditions have remained broadly stable since August, although significant differences persist across credit ratings, geographical markets, sectors, currencies and maturities.

Fitch’s assessment is based on Bloomberg’s Liquidity Assessment scores, which measure individual securities on a scale of 1 to 100. A higher score indicates lower liquidation costs and better market liquidity.

The data showed that around 69% of Fitch-rated sukuk had liquidity scores above 50 as of November 2, compared with 64% during the March low and 81% in January before the conflict.

The median liquidity score, excluding securities with local ratings, reached 61 in early November, recovering from 55 in March but remaining below the pre-conflict level of 68.

A significant divide also persists between investment-grade and speculative-grade sukuk.

Investment-grade sukuk recorded an average liquidity score of 67 on November 2, compared with 69 on August 4, 64 on March 23 and 72 on January 30.

In contrast, non-investment-grade sukuk recorded an average score of just 35, against 40 in August, 33 in March and 48 in January.

The difference highlights the stronger liquidity position of higher-rated Islamic debt instruments compared with speculative-grade securities.

Fitch noted that securities rated ‘AAA’ and ‘F1sf’ carried the highest liquidity scores, while sukuk in the ‘A’ rating category recorded the strongest improvement between October and November.

Geographical differences also remained pronounced, with sukuk from Hong Kong, Malaysia, supranationals and Indonesia among the most liquid markets, recording average scores ranging between 69 and 95.

Within the Gulf Cooperation Council (GCC), Saudi Arabia, Qatar and Kuwait led the regional market with an average liquidity score of around 57.

Fitch said GCC sukuk liquidity briefly weakened during the Houthi attacks in late October before recovering, although it remained below January.

Turkish and Egyptian sukuk recorded average liquidity scores of around 50, with Turkish securities remaining slightly below their March levels, while Egyptian sukuk performed better than during that period.

The assessment also showed that ASEAN sukuk were, on average, more liquid than GCC securities.

By sector, asset-backed securities (ABS) sukuk recorded the strongest liquidity, emerging as the only category to exceed pre-conflict levels. Supranational and sovereign sukuk followed.

Meanwhile, sukuk issued by UAE real estate developers recorded the lowest liquidity scores among the securities covered by Fitch.

In the currency segment, Malaysian ringgit-denominated sukuk remained the most liquid and continued to trade above pre-conflict levels. Euro-denominated sukuk also recorded an improvement, with liquidity scores reaching approximately 81.

Fitch further observed that local-currency sukuk in the GCC were more liquid than bonds. Securities with maturities of less than one year and those with maturities of 10 years or more recorded the highest liquidity scores.

The global sukuk market covered by Bloomberg’s liquidity assessment exceeds $950 billion in outstanding volume. Approximately 84% of the market recorded liquidity scores above 50, while only 2.5% scored below 25.

The largest share of outstanding sukuk, accounting for 11.1%, fell within the 85–90 liquidity score range, followed by the 55–60 category at 10.3%.

Looking ahead, Fitch said sukuk liquidity would remain sensitive to geopolitical tensions, higher interest rates and the movement of capital from emerging markets towards developed economies.

The agency noted that periods of heightened geopolitical volatility in the Middle East had previously triggered liquidity deterioration, particularly in March, underscoring the vulnerability of Islamic debt markets to external shocks.

Fitch rates more than 70% of the outstanding global US dollar sukuk market, providing substantial coverage of international Islamic debt securities.