Whether you run a small or medium-sized enterprise (SME) in a developing country or a multinational headquartered in a financial hub, managing financial risks is key to building a long-term business. This was very evident in 2019 where geopolitical incidents and the ongoing trade dispute between China and the United States made the business environment difficult to navigate.
In Asia, the unease was equally felt with a significant number of treasury professionals such as treasurers and CFOs expressing concern over a number of financial risks. According to Asset Benchmark Research’s Treasury Review 2019, foreign exchange risk was the top concern on the minds of treasury professionals followed by interest rate risk and liquidity risk respectively.
Foreign exchange risk was more of a concern for large companies with around 85% of them surveyed indicating that this was a top concern for them. Mid-cap companies were likewise concerned about foreign exchange risk but were also significantly vocal about addressing compliance risks compared to their larger peers.
In previous years, markets such as China have placed stringent window guidance measures on companies aiming to take capital outside of the country. SMEs on the other hand were more concerned about interest rate risk compared to their peers suggesting a need for these companies to have cheaper access to funding to grow their business.
Despite financial risk concerns over areas such as foreign exchange fluctuations, almost a quarter of the participants in the Treasury Review 2019 mentioned that they had not hedged against their foreign currency exposure. When asked why they didn’t consider any hedging measures, most (42%) respondents said their foreign currency exposure was too small to justify utilizing a financial hedging tool. Others cited a lack of internal policy in determining how to hedge against such risk.
Nevertheless, of the participants that did hedge their foreign exchange exposure, many (67%) of them opted for forwards contract/swaps. This signifies the growing popularity of the hedging tool, as 54% of participants said they used during the Treasury Review 2018 survey.
“We always believe that the localization of the business is very important and centralization of the risk management is as important as the localization of the business. The risk of the compliance is very important. As a group we need to centralize this type of risk management,” shares a treasurer of a China-based electronics multinational on their efforts to enhance their risk management process.
As part of The Asset’s coverage of financial markets in Asia, we are pleased to invite you to participate in this year’s Treasury Review 2020 as we look forward to continuing the discussion on and promote best practices in corporate treasury management.
Please click here if you wish to participate in this year’s Treasury Review 2020.
Within our Treasury Review series, we have also generated our annual Client Satisfaction Index ranking the best service providers in Asia and in-country. To view last year’s results and those from previous years, please click here.
About Asset Benchmark Research’s annual Treasury Review
Conducted since 2013, Asset Benchmark Research surveys corporates across Asia on an annual basis to understand the challenges faced by corporate treasurers and CFOs and the solutions they consider best suited to navigate financial markets. In 2019, almost 800 corporate finance representatives participated in the survey, led by decision-makers in Greater China, India and Indonesia. Based on annual turnover, 54% of respondents are small and medium-sized enterprises, 27% are mid-caps and 19% large corporations (>US$1 billion turnover per annum).