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Date: 30/10/2007
HSBC helps start Middle East bond indices amid slowdown

Dubai: HSBC Holdings Plc has helped start a group of indices that includes benchmarks for global Islamic and Middle East conventional bonds to encourage trading as a global credit crunch delays sales and doubles spreads.

HSBC and the Dubai International Financial Exchange (DIFX), which lists almost $14 billion of bonds that comply with Sharia, said on Monday that the three indices would help investors better gauge the value of their fixed-income assets and encourage financial services to create products linked to them.

Gulf Arab bond sales, including Islamic bonds, or sukuk, surged in 2005 and more than doubled to $30 billion last year, according to HSBC, which helps arrange sales. "Investors have very much bought into the Middle East growth story," James Milligan, HSBC head of fixed income trading in the Middle East, told reporters in Dubai.

The region, where economies are surging on a near five-fold increase in oil prices in the last six years, "is on a lot of radar screens," said Milligan, whose HSBC saw its Middle East bond trading business triple in the first half of the year, compared with the year-earlier period.

Still, Middle East bond sales will probably fall this year for the first time since at least 2003 after the mortgage crisis in the United States made investors less enthusiastic about riskier assets, and pushed up the cost of borrowing.

"There could well be a drop-off compared with last year," Milligan said. Sales of a "fairly substantial" volume of Middle East bonds that had been planned before the crisis broke in June have been delayed, Milligan said, without being specific.

"This is a hiccup for the moment," Milligan said. "We are expecting volumes again to pick up substantially".

Gulf Arab bond sales total $24 billion so far this year, of which about 60 per cent, or $14.4 billion, comply with Sharia, according to HSBC. That compares with Islamic bonds sales last year of about $9 billion.