Businesses approach to currency risk management varies significantly worldwide, new research from market analysts East & Partners (E&P) shows.
Citing a lack of knowledge, experience, and product understanding, small businesses universally continue to undermanage their exposure to currency volatility, however that trend is slowly changing.
In both micro and SME segments, Asia based businesses engage with Options and Forwards at higher rate, 28 percent and 34 percent respectively, than most of their global counterparts.
On a country level, Singapore Forwards usage (46.2 percent) outstripped Hong Kong (37.2 percent). Singapore Options usage (37.2 percent) also outstripped Hong Kong (31.9 percent). Meanwhile, Malaysian and Philippine Options and Forwards penetration pushing regional average down.
According to the research, Canadian micro businesses demonstrate the highest rate (20.6 percent) of FX Options usage, while their Australian peers come in last with just 14.5 percent reporting using the product.
Within the small to medium enterprises (SME) segment however, Australia leads with over 29 percent of businesses engaging with FX options while SMEs in the UK lag behind the rest of the world, with just one in five businesses implementing the hedging tool.
New Zealand micro businesses (65 percent) show clear favouritism for the FX Forwards market. That represents exceptionally high regional engagement, more than tripling the next closest performing country, the US, which sits at just over 19 percent.
Similarly, more than three in four New Zealand SMEs use FX Forwards compared to the UK and Australia where the figure drops further to only one in four firms in the SME segment.
Fragmented business FX market
The increased engagement, particularly among Lower Corporates which is approaching near universal uptake, has led to an increasingly fragmented business FX market as banks battle with newer providers for market and wallet share.
Previous rounds of E&P’s research has found that businesses are increasingly chasing the best value available, or “multi-banking” their FX needs, consequently decreasing wallet share per FX provider.
Although falling wallet share trends have been sustained worldwide in 2016, it is clear advances made by non-bank FX providers have been halted as banks respond to the challenge with sophisticated multiproduct platforms and improved service propositions.
“Whether we are speaking to businesses based in Hong Kong, Singapore, Malaysia or the Philippines, it is clear the high level of cross border trade, multicurrency cash management and increasing usage of regional treasury centres is driving greater usage of Forwards and Options,” says Amit Alok, Head of East & Partners Asia.
“The latest round of research reveals surprising currency trading volume forecasts but most importantly confirms businesses in the Asia region are moving away from a reactive stance to FX market volatility and instead removing the potential downsides from dealing in unpredictable FX markets at relatively low cost.