Now is proving to be a boon time for FX trading and services in Asia Pacific. What has long been known by bankers working in the region was recently confirmed by a survey of the industry from the Bank for International Settlements. Hong Kong, Singapore and Tokyo increased their combined share of global FX trading from 15% in 2013 to 21% in 2016, according to BIS figures.
In addition, the renminbi became the most actively traded emerging market currency, with the average daily turnover almost doubling to $202bn, a rise from 2% to 4% of global FX turnover. In more good news for Asia, Korean won, Indian rupee and Thai baht also gained market share.
To David Lynne, managing director, head of fixed income & currencies, Asia Pacific at Deutsche Bank, the results are a natural by-product of the favourable macro-economic trends in Asia.
“If you take the growth of renminbi usage and capital flows it’s reasonable that Asia’s percentage of foreign exchange volume will increase,” he explained. “Big parts of Deutsche Bank’s corporate foreign exchange business are real economy GDP driven, so with Asia growing at 3% and the rest of the world at zero or minus something and with the savings rate here five times that of Europe or the US, it is natural that the foreign exchange volumes will pivot towards Asia.”
In terms of individual currencies, the renminbi is definitely the stand out. Whatever the broader arguments about the long-term ability the yuan to become a reserve currency, China’s internationalisation programme has succeeded in getting the currency used for trade and investment. “Asia’s growth is really linked to the rise of renminbi and China. In terms of global trade, the renminbi has become a topical subject everywhere, whether that’s Indonesia, Tokyo, New York or London,” Dominque Blanchard, global head of sales and origination at ANZ told Asiamoney.
Of course last year, the surprise devaluation in the currency caused plenty of volatility and uncertainty. But for Blanchard it’s during these moments that the strength of the franchise comes into its own.
“The managed depreciation of the renminbi caught people off guard last August and that triggered a series of headaches in the region,” added Blanchard. “The political dimension of renminbi internationalisation has been a big subject with clients in general and it’s as much a political equation as an economic equation and that’s the value we can add, because without knowing people on the ground, you can’t know what is really happening.”
The growing levels of FX activity in Asia also stem from Asian institutions conducting more activity outside their home market and outside the region. One aspect of this outward shift is the need for institutions to look further afield for investments, a process that has been accelerated by quantitative easing and low interest rates.
“If you take the example of a Korean insurance company, from a Solvency II point of view they need to increase duration. But the range of bond market instruments available in Korea is quite limited in terms of duration and type of product so they increasingly have to go outside the country,” explained Lynne. “And that immediately gives them a foreign exchange hedging problem.”
But as clients become more international, the banks facilitating that strategy need to be able to fulfil the regulatory and compliance issues that come from pursuing cross border investments, explains Chu Kok Wei, group head of treasury & markets at CIMB Group.
“The need for banks to understand the regulations of the central banks and offer advice and services within the regulatory framework is far more pressing now than before,” he said. “But the opportunities arising from these are plenty and banks will have to equip themselves with the regulatory requirements to cater to the increasing appetite for cross-border investments from clients.”
Technology toolkit
Technology is also a bigger part of the FX provider’s toolkit than ever before. This is not surprising considering the impact of fintech across banking and FX is particularly well placed to benefit from the advantages it provides in terms of speed, cost reduction and automation.
“There’s a lot of focus from our clients on efficiency: how do they transact, how do they transact with us and what’s the downstream operational and reporting process of that?” explained Lynne
“So another area we’re spending a lot of time on is building technology algos and processes to basically give clients to the ability to draw from their balance sheet or report their NAV in a highly automated process.”
But while banks needs to show they are at the cutting edge of technology, this is not a substitute for good old fashioned advice.
“Technology plays a role, but at the end of the day clients are going to trade with us based on the information and advisory we can provide and our ability to give access to markets products that are not so easy to reach,” said Blanchard.
Standout banks
The myriad of market drivers in Asia means banks need a platform that is fit for purpose if they wanted succeed in an increasingly competitive market space. ANZ is doing something right as the bank was voted best for overall FX services by corporates in Asiamoney’s FX Poll 2016. The poll received 2040 valid responses.
To Blanchard, the ANZ’s advantage comes from its focus on the region.
“We have always seen opportunities in Asia and in our home markets of Australia and New Zealand; we’re not distracted by business focus on Europe or the US,” he said. “Our focus has always been on Asia, Australia and New Zealand and I think that has made the difference.”
ANZ has spent the last few years developing its services to financial institutions including asset managers. That investment is paying off and the bank and was ranked third for overall FX services by financial institutions in Asiamoney’s poll.
“During the past few years we’ve grown our presence with financial institutions; including real money accounts for example,” he said. “We kept strong on banks and have continued to grow our franchise with corporates in key countries so I think clients like the fact we have that dual knowledge. That gives us market intelligence that is valuable to them.”
Standard Chartered put in an improved performance this year, rising one spot to second place for overall FX services as voted by corporates.
“The strength of our Asian franchise stems from the depth and breadth of our coverage, in terms of our geographical reach and our product capabilities,” said Geoff Kot, head of FX trading, Greater China at Standard Chartered Bank. “We offer a full suite of FX products including spot, deliverable and non-deliverable forwards, options and structured products for hedging and investment purposes. In addition we have a team of economists and strategists who cover each of the local markets in which we are present.”
The renminbi is a particular focus of the bank.
“With major offices in Beijing, Shanghai and Hong Kong, Standard Chartered has been well positioned to help clients take advantage of the internationalisation of the RMB,” said Kot. “This year our Hong Kong branch was granted one of only six offshore CFETS market-making licences. We have assisted clients with their cross-border RMB FX needs through onshore/offshore sweep facilities as well as our status as an Overseas Participating Bank in Hong Kong, Singapore and London.”
Meanwhile, CIMB was voted the best bank for overall FX services by financial institutions as well as picked as the best for corporates and FIs in its home market of Malaysia. Its wide-ranging presence in southeast Asia combined with strong debt platform give it an edge, said Chu.
“The success of our FX franchise lies in our strong knowledge of the local regulatory requirements and markets in our ASEAN presence to facilitate cross border FX transactions. We also offer good and prompt services and competitive pricing to our interbank and institutional counterparts.
“In addition, we are getting good flow from global institutional investors on the back of bond sales, with them being attracted by our top ranking in primary and secondary bond markets.”
But with Asian institutions becoming more global in their approach, Lynne says Deutsche’s advantage comes from the integration of a comprehensive Asia offering into a global platform.
“Geographical we are present in 15 countries in Apac; not just Hong Kong, Korea and Japan but also in places like Sri Lanka and Vietnam. Being involved in every element of the market is key.
“The second piece is having a broad set of products and solutions. At the one end we have a massive global business of G10 FX with clients ranging from banks, high frequency traders and Japanese retail aggregators which is very technology driven. And at the other end you have the much longer timeframe advisory type process. The beauty of foreign exchange is it touches a large amount of clients’ business.”