The the Sukuk index will be increased by

The Malaysian
government has started to develop the Islamic Capital Market in the year of
2009, which has contributed to the better performance of Sukuk in Malaysia. Tax
incentives aimed at developing the Islamic Capital Market were offered in the
2009 Budget. The fees and profit earned by institutions undertaking activities
such as underwriting and trading Sukuk issued in Malaysia and also distributed
outside Malaysia will be exempted from tax. Besides, one of the efforts made by
government to promote the Sukuk market is to exempt tax for special purpose
vehicle (SPV) that has been set up for Islamic financing. In addition,
deduction on the cost of issuance of the Sukuk incurred by the SPV will be
given to the company that established the SPV (Razazila, Roudaki & Clark,
2010). These incentives provided have attracted more investors especially those
non-Muslims to invest in Sukuk and also attracted more issuers to issue Sukuk
in acquiring funds. Therefore, efforts made by Malaysia government have greatly
contributed to the outperforming performance of Sukuk compared to conventional
bonds from the year 2009 and onwards.

According
to Ahmad and Radzi (2011), they found out that conventional bond is less
susceptible to the economic conditions which suggest that performance of
conventional bond is less affected by the economic conditions. The result is
consistent with the findings of Ahmad and Radzi (2011).It can be seen that the
coefficients of all independent variable from the result of this study that
affecting the performance of Sukuk index are greater compare to conventional
bond index.

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When
inflation increases by 1% point, the conventional bond index will be reduced by
only 0.71% point while Sukuk index will be reduced by 0.98%point. Furthermore,
when interest rate increases by 1% point, the conventional bond index will be
reduced by 10.9% point while Sukuk index will be reduced by 13.62% point. When
the GDP increases by 1%, the Sukuk index will be increased by 0.71% while
conventional bond index will only increase by 0.60%. In addition, conventional
bond index will increase 0.38% while Sukuk index will increase by 0.47% when
openness of trade increases by 1%. Therefore, it can be said that macroeconomic
conditions have a greater influence on the performance of Sukuk during the
period of 2007 until 2014 based on the result of this study. In other word,
performance of conventional bond is less affected by macroeconomic conditions
compared to Sukuk in Malaysia.