For decades, investors and governments worldwide have relied on the US bond market as a safe haven for their funds.
US government bonds are trusted due to the strength of the US economy and its position as the world superpower, with the US dollar being the sole global reserve currency.
That is now set to change. The Liberation Day tariff announcement upset the US bond market, raising fears that investors are losing trust in the US economy. The tariff announcement has since triggered a sell-off in US Treasuries.
Given the erratic policies of the Trump administration and its growing hostility toward the global economic order, trust in the US as a leader of the free market is fast eroding.
While Trump may pause or reverse his decisions (as seen with the 90-day reciprocal tariff pause), he has introduced profound uncertainties into the global system. The US is losing its standing, and the world watches anxiously for its next move.
As the world grapples with uncertainties, ASEAN’s $3.6 trillion GDP with 4.7% annual growth presents a viable alternative for the capital market.
What happened in the US bond market serves as a wake-up call, with implications and opportunities for ASEAN and the Global South. With many of its members still developing, these nations should look at alternatives to promote growth and prosperity.
A multilateral approach is essential, considering each country’s strengths and weaknesses, as well as the dynamic strategic interplay between major powers like the US and China.
As the current chair of ASEAN, Malaysia is uniquely positioned to foster closer collaboration in trade and finance among members and global partners.
As ASEAN is set to be the world’s fourth-largest economy by 2030, deepening of capital markets is essential.
The sukuk market presents an excellent opportunity to promote growth and resilience in the long term and thus, must be given priority. The ASEAN sukuk market has seen steady growth, with USD414 billion outstanding sukuk in 2023.
Unlike conventional bonds, sukuk offers flexibility as it can be structured as equity-based or debt-based investment.
A strong sukuk market serves to close the gap between financial markets and the real economy, as sukuk requires an underlying asset. This arrangement promotes risk-sharing and minimises moral hazard, enabling it to serve as an insurance against future crises.
Given its emphasis on ethical investment, sukuk is an excellent investment instrument to further the ESG agenda. The sukuk market can promote energy transition, social wellbeing and financial inclusion.
Issuance of green sukuk and innovative sukuk combined with social finance instruments are some of the examples on sukuk’s roles in sustainable development.
For developing countries, sukuk can play an important role in funding development expenditure, be it for revenue-generating or non-revenue generating projects. Thus, sukuk can be a very useful instrument, especially when government revenue is constrained.
However, more needs to be done for sukuk to play a central role in promoting development and economic prosperity. Harmonisation of shariah standards is essential, as well as research and innovation to maximize the benefits from sukuk.
As a global center in Islamic finance and the largest sukuk market, Malaysia is well positioned to play a leading role to deepen and elevate the sukuk market, working collaboratively within the spirit of ASEAN.
This will support the ASEAN Capital Markets Forum Action Plan 2026-2030, which is set for release in October this year.
Mohammad Abdul Hamid
Head of Economic Prosperity Cluster
Pertubuhan IKRAM Malaysia (IKRAM)
