Hedge funds and fixed income funds are among those emerging as significant global buyers of the Gulf’s Islamic bonds, or sukuk, which have been traditionally bought by Muslim investors seeking assets that adhere to Sharia.

The bonds, which comply with Islam’s ban on interest payments and pay returns derived from physical assets, allow these investors to bypass foreign capital curbs in a region that is seeing its wealth further bolstered by high oil prices.

“These investors are agnostic about where they go. Sharia isn’t a concern for them,” said Doug Bitcon, senior trading and sales dealer at European Islamic Investment Bank (EIIB).

Investors from outside the Gulf now take up the majority of some issues, in marked contrast to their modest participation several years ago when sukuk was seen as a novelty.

In 2006, they took up 20 per cent of a $3.5 billion sukuk for the Ports, Customs and Free Zone Corporation of Dubai.

And last year, such buyers took 80 per cent of a $2.53 billion issue by Abu Dhabi’s Aldar Properties, according to Barclays Capital, arranger of both deals.

“Since the region’s wealth means that it does not need to issue external debt often, scarcity value enters into the picture,” said Sonya Dilova, an emerging markets analyst at UK-based investor F&C Asset Management.

Gulf surpasses Malaysia

Governments and companies in the six-member Gulf Cooperation Council (GCC) have been quick to capitalise on rising international interest. Moody’s Investors Service said the Gulf surpassed Malaysia to sell a record $12 billion in sukuk last year despite the global credit crunch, up from $9 billion in 2006.

The weakening US dollar, which is causing investors to spurn greenback-denominated assets in emerging markets, is also heightening the allure of Gulf-currency sukuk as speculators position for expected currency revaluations in the region.