GTR Asia Finance week: Keynote panel discussion prep bullet points 04 September 2018, Singapore
Keynote panel discussion prep bullet points by Gopul Shah @ GTR Asia Finance week – 04 September 2018, Singapore:
Regional flows, patterns and the outlook for growth: The truth behind Asian trade
With GTR having recently embarked on various initiatives seeking to cover the data and gain insight into a global trade at a national, regional and global level, this discussion session will share the findings within an Asian perspective before considering the following talking points:
• Is the market more buoyant at present? Have intra-regional trade levels helped fuel this optimism? Does deal flow reflect this?
• Have changes in US trade and economic policy impacted on liquidity levels in the Asian market? What effect has this had on pricing?
• How competitive are Asian goods and services globally? How significant is currency depreciation? What are the key industry sectors to watch?
• To what extent have innovations in technology and developments around areas such as blockchain and big data helped develop the market? Which sectors are best placed to benefit?
• Is sustainable financing increasing in significance and profile? To what extent does this indicate a change of culture within trade finance?
Moderator: Kai Fehr, Head of Trade, Asia Pacific, International Trade Services, Wells Fargo
Speakers:
Shivkumar Seerapu, Managing Director, Head of Global Transaction Banking, Asia Pacific, Lloyds Bank
Gopul Shah, Director, Corporate Treasury & Head of Structured Trade Finance, Golden Agri-Resources
Puja Kumar, Director, Head of Trade Risk Distribution APAC, Bank of America Merrill Lynch
Srinivasan Venkita Padmanabhan, President & Global Head, Corporate Finance, Olam International
Tolentino Mendonca, Managing Director, Regional Head of Trade Finance, Asia-Pacific, Credit Agricole
Research findings provided by: Rebecca Harding, Independent Economist; Women in FinTech Powerlist, 2017; Author, ‘The Weaponization of Trade’
1. Is the market more buoyant at present? Have intra-regional trade levels helped fuel this optimism? Does deal flow reflect this?
• Cautiously optimistic on global trade and global growth! At the moment the global trade may be flowing faster, but the risk is increasing in medium and long-term.
o There are multiple factors at play - anti-trade protectionist rhetoric, deleveraging initiatives, currency and commodity price volatility – that could have adverse consequences on trade and global growth.
o Supply chains may have to restructure and relocate from countries impacted by trade protectionism; the risk is that supply chains may fragment. SME’s are most vulnerable!
o The structural reform complacency and investment climate in emerging markets could also stun the potential demographic dividends.
• Tech-disruption is also changing the way business is and will be conducted though the benefits are immense as technology helps expand the scope and size of business
o The increasing adoption of industrial automation, advanced robotics, smart factories, the internet of things, and 3D printing coupled with hyper-interaction with tech giant's millennials and social media is transforming the supply chain and manufacturing process.
• The recent geopolitical and economic developments have the potential to shift the focal point in global trade from the US to Asia, however, structural changes and readiness matters.
o Asian and other countries (without the US) have agreed to sign the CP-TPP, China’s One Belt One Road initiative is developing new trade networks in the region.
o The ongoing trade war is about ‘fair trade, market access, economic and political superiority’ while ‘tariffs’ are weapons and the fallout (bargaining chip) is ‘manufactured goods, investment policy and movement of talent’. Of course, there is collateral damage to US allies.
2. Have changes in US trade and economic policy impacted on liquidity levels in the Asian market? What effect has this had on pricing?
• There is sufficient liquidity in the financial markets however liquidity is attracted to better credit and ESG standards of corporate, pricing, self-liquidating financing structures, and specific industries.
o In the current business environment, banks are focused on the real economy and lend to companies that have a long-term core business model and good governance practices. The key focus for banks today is compliance, risk management, credit, and market risk mitigation.
o There are also pockets of liquidity in local markets in local currencies that can be tapped – China, Malaysia, Singapore, Middle East, etc. These local currency offering can be swapped back to functional currencies with help of banks which could yield better USD pricing.
o Currently, there is the ongoing standoff in fixed income bond markets - issuers are expecting competitive pricing versus investors a cushion for an increase in rate hike expectations. Issuers are also shifting their focus to borrow long-term bilateral loans from banks in emerging markets.
• Note that commodity prices, the perception of market/credit risks, and compliance underpins liquidity and bank finance. The volatility in FX markets, interest rate hikes, tax policy, and QE withdrawal are also impacting liquidity levels and increased ‘risk on’ and ‘flight to safety’ increasing risk premiums.
o The US tax policy, US growth, and the risk of events have shifted liquidity to safe havens like US, EUR.
o There is also a regulator and government-driven deleveraging happening in many countries – material impact coming from China, India.
o The strength of USD will continue as there is no alternative currency yet though there are limited trades happening in local currencies like INR, CNY, THB but finally swapped to USD.
3. How competitive are Asian goods and services globally? How significant is currency depreciation? What are the key industry sectors to watch?
o Asian (ex-China) goods and services are slowly becoming competitive due to tariffs/barriers on Chinese exports, investments, and depreciation of currencies.
o Currency depreciation benefits can be short-lived and that inflation in cost hike catch-up eroding competitiveness.
o Corporates that have diversified supply chains (ex-China) will also benefit as they could channel their sales ex-China to skirt tariffs.
o On the industry front, services, pharma, and technology industry will remain resilient for now compared with commodity and manufacturing industry.
o Emerging market governments will have to make structural changes to support industry and stay competitive.
o The winners will be those companies that focus on developing its competitive strength, adapt to the changing global economic environment, and develop and implement ways to embrace and address the disruptions of technology and take advantage of globalization and technological changes.
4. Is sustainable financing increasing in significance and profile? To what extent does this indicate a change of culture within trade finance?
o Sustainability is non-negotiable! No business can survive without the environment and the support of the community, stakeholders, talent, and customers.
o ESG coupled with multi-stakeholder collaboration is a strategic initiative within the most successful corporation; this is also a good strategy to achieve a workable solution.
o Banks that ignore adverse ESG risks/impact face increased risks. Investors, banks, stakeholders, and customers are eagerly supporting companies that have strong sustainability governance mandates across production and supply chain.
o Blockchain, technology, and digitization drive transparency, traceability, and sustainable practices.
5. What are the key priorities for the rest of 2018/2019?
These are difficult to predict and prioritize given market dynamics however below are some of the key indicators with no clear ranking.
o Managing impact of technology, digitization, disruption, and market volatility.
o Engaging and managing talent, customers, stakeholders.
o Risk and contingency management emerging from trade war impact, stronger and volatile USD impacting client ability to buy, cost of production considerations and managing business expectations.
o Impact of dollar strength, hike in interest rates, local currency depreciation, and tightening of US monetary policy coinciding with moves by the European Central Bank and the Bank of Japan toward enhanced monetary stimulus.
o Liquidity, cash flow, funding access/diversification, and banking relationship. Medium and short-term – deleverage, use its debt and cash flows wisely, investment in technology and digitization.
o M&A, divestitures and reshuffling business portfolio.
o Deleveraging and ensuring profitable growth and investments.
Regional flows, patterns and the outlook for growth: The truth behind Asian trade
With GTR having recently embarked on various initiatives seeking to cover the data and gain insight into a global trade at a national, regional and global level, this discussion session will share the findings within an Asian perspective before considering the following talking points:
• Is the market more buoyant at present? Have intra-regional trade levels helped fuel this optimism? Does deal flow reflect this?
• Have changes in US trade and economic policy impacted on liquidity levels in the Asian market? What effect has this had on pricing?
• How competitive are Asian goods and services globally? How significant is currency depreciation? What are the key industry sectors to watch?
• To what extent have innovations in technology and developments around areas such as blockchain and big data helped develop the market? Which sectors are best placed to benefit?
• Is sustainable financing increasing in significance and profile? To what extent does this indicate a change of culture within trade finance?
Moderator: Kai Fehr, Head of Trade, Asia Pacific, International Trade Services, Wells Fargo
Speakers:
Shivkumar Seerapu, Managing Director, Head of Global Transaction Banking, Asia Pacific, Lloyds Bank
Gopul Shah, Director, Corporate Treasury & Head of Structured Trade Finance, Golden Agri-Resources
Puja Kumar, Director, Head of Trade Risk Distribution APAC, Bank of America Merrill Lynch
Srinivasan Venkita Padmanabhan, President & Global Head, Corporate Finance, Olam International
Tolentino Mendonca, Managing Director, Regional Head of Trade Finance, Asia-Pacific, Credit Agricole
Research findings provided by: Rebecca Harding, Independent Economist; Women in FinTech Powerlist, 2017; Author, ‘The Weaponization of Trade’
1. Is the market more buoyant at present? Have intra-regional trade levels helped fuel this optimism? Does deal flow reflect this?
• Cautiously optimistic on global trade and global growth! At the moment the global trade may be flowing faster, but the risk is increasing in medium and long-term.
o There are multiple factors at play - anti-trade protectionist rhetoric, deleveraging initiatives, currency and commodity price volatility – that could have adverse consequences on trade and global growth.
o Supply chains may have to restructure and relocate from countries impacted by trade protectionism; the risk is that supply chains may fragment. SME’s are most vulnerable!
o The structural reform complacency and investment climate in emerging markets could also stun the potential demographic dividends.
• Tech-disruption is also changing the way business is and will be conducted though the benefits are immense as technology helps expand the scope and size of business
o The increasing adoption of industrial automation, advanced robotics, smart factories, the internet of things, and 3D printing coupled with hyper-interaction with tech giant's millennials and social media is transforming the supply chain and manufacturing process.
• The recent geopolitical and economic developments have the potential to shift the focal point in global trade from the US to Asia, however, structural changes and readiness matters.
o Asian and other countries (without the US) have agreed to sign the CP-TPP, China’s One Belt One Road initiative is developing new trade networks in the region.
o The ongoing trade war is about ‘fair trade, market access, economic and political superiority’ while ‘tariffs’ are weapons and the fallout (bargaining chip) is ‘manufactured goods, investment policy and movement of talent’. Of course, there is collateral damage to US allies.
2. Have changes in US trade and economic policy impacted on liquidity levels in the Asian market? What effect has this had on pricing?
• There is sufficient liquidity in the financial markets however liquidity is attracted to better credit and ESG standards of corporate, pricing, self-liquidating financing structures, and specific industries.
o In the current business environment, banks are focused on the real economy and lend to companies that have a long-term core business model and good governance practices. The key focus for banks today is compliance, risk management, credit, and market risk mitigation.
o There are also pockets of liquidity in local markets in local currencies that can be tapped – China, Malaysia, Singapore, Middle East, etc. These local currency offering can be swapped back to functional currencies with help of banks which could yield better USD pricing.
o Currently, there is the ongoing standoff in fixed income bond markets - issuers are expecting competitive pricing versus investors a cushion for an increase in rate hike expectations. Issuers are also shifting their focus to borrow long-term bilateral loans from banks in emerging markets.
• Note that commodity prices, the perception of market/credit risks, and compliance underpins liquidity and bank finance. The volatility in FX markets, interest rate hikes, tax policy, and QE withdrawal are also impacting liquidity levels and increased ‘risk on’ and ‘flight to safety’ increasing risk premiums.
o The US tax policy, US growth, and the risk of events have shifted liquidity to safe havens like US, EUR.
o There is also a regulator and government-driven deleveraging happening in many countries – material impact coming from China, India.
o The strength of USD will continue as there is no alternative currency yet though there are limited trades happening in local currencies like INR, CNY, THB but finally swapped to USD.
3. How competitive are Asian goods and services globally? How significant is currency depreciation? What are the key industry sectors to watch?
o Asian (ex-China) goods and services are slowly becoming competitive due to tariffs/barriers on Chinese exports, investments, and depreciation of currencies.
o Currency depreciation benefits can be short-lived and that inflation in cost hike catch-up eroding competitiveness.
o Corporates that have diversified supply chains (ex-China) will also benefit as they could channel their sales ex-China to skirt tariffs.
o On the industry front, services, pharma, and technology industry will remain resilient for now compared with commodity and manufacturing industry.
o Emerging market governments will have to make structural changes to support industry and stay competitive.
o The winners will be those companies that focus on developing its competitive strength, adapt to the changing global economic environment, and develop and implement ways to embrace and address the disruptions of technology and take advantage of globalization and technological changes.
4. Is sustainable financing increasing in significance and profile? To what extent does this indicate a change of culture within trade finance?
o Sustainability is non-negotiable! No business can survive without the environment and the support of the community, stakeholders, talent, and customers.
o ESG coupled with multi-stakeholder collaboration is a strategic initiative within the most successful corporation; this is also a good strategy to achieve a workable solution.
o Banks that ignore adverse ESG risks/impact face increased risks. Investors, banks, stakeholders, and customers are eagerly supporting companies that have strong sustainability governance mandates across production and supply chain.
o Blockchain, technology, and digitization drive transparency, traceability, and sustainable practices.
5. What are the key priorities for the rest of 2018/2019?
These are difficult to predict and prioritize given market dynamics however below are some of the key indicators with no clear ranking.
o Managing impact of technology, digitization, disruption, and market volatility.
o Engaging and managing talent, customers, stakeholders.
o Risk and contingency management emerging from trade war impact, stronger and volatile USD impacting client ability to buy, cost of production considerations and managing business expectations.
o Impact of dollar strength, hike in interest rates, local currency depreciation, and tightening of US monetary policy coinciding with moves by the European Central Bank and the Bank of Japan toward enhanced monetary stimulus.
o Liquidity, cash flow, funding access/diversification, and banking relationship. Medium and short-term – deleverage, use its debt and cash flows wisely, investment in technology and digitization.
o M&A, divestitures and reshuffling business portfolio.
o Deleveraging and ensuring profitable growth and investments.
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