Emerging market (EM) currencies are weakening in value as the US dollar enjoys a glowing resurgence, finance commentators have noted. With 2018 well past the halfway point, experts have weighed in with their thoughts on how the global currency markets have shaped up over the past few months – and where they may be heading for the remainder of the year.
Deloitte chief economist and blogger Ian Stewart says that EM currencies have become “big casualties” of the dollar’s rise, adding: “So far this year, the rand, rouble and Indian rupee are down about 8% against the dollar, the Brazilian real has fallen by 15% and the Turkish lira is off by 20%.”
The Barclays Research Team points out that, given “the backdrop of rising trade frictions that should disproportionately affect EM” – together with a rise in US short-term currency rates and country-specific challenges in some high-profile emerging economies – EM currencies “still do not offer compelling value”.
However, Bloomberg Opinion columnist Nir Kaissar argues that investors’ concerns over EMs are “misplaced”, because there’s “little evidence that the volatility of EM currencies has a meaningful impact on their portfolios”.
Kaissar writes: “There are good reasons to believe that developing countries are better able to defend their currencies than ever before. And despite all the tumult in places such as Turkey and Brazil, emerging markets are generally more stable and financially savvy than in decades past. All of that should firm up their currencies.”
CFOs increasingly view corporate treasurers as allies in the field of risk management – yet treasury departments require greater support to fulfil their part of the effort. That’s the key message from HSBC’s Risk Management 2018 survey, which canvassed the views of 200 CFOs and 300 treasurers.
In a summary of the findings, HSBC thought-leadership specialist Johannes Franz Herrmann writes: “In the current environment of rising uncertainty and ever-changing regulatory requirements, an efficient, market-price risk management [function] is a key success factor. CFOs have to rely on their treasurers as trusted lieutenants who manage risks in line with best practice in order to safeguard financial statements and add to enterprise value.”
However, Herrmann notes: “While 73% of CFOs say the risk management role of their treasurers has grown, 57% are not yet fully confident that their treasury department has the skills required. Survey results listing FX as one of corporates’ key exposures confirm this view.
“While 70% of CFOs say that their company’s earnings were negatively impacted by avoidable, unhedged FX risks in the past two years, more than half of CFOs believe that FX is the one risk their [companies are] least equipped to deal with.”
With those figures in mind, he adds, “It is not surprising that the majority of treasurers want to further develop their risk management capabilities. However, most treasuries will likely have to manage this without further support, as the survey showed only 32% of CFOs provided more resources to their treasury teams in the past two years.”
Almost four-fifths of the world’s multinationals have either altered or delayed their tax plans as a result of recent US reforms, according to global consultancy Taxand.
In a survey of CFOs and tax directors from across Europe, Asia and the Americas, the firm found that 79% of the planet’s largest businesses were revising their tax strategies following the enactment of sweeping legislative package HR 1: 24% up on the same time last year, before the measures were finalised.
In addition, the survey revealed that 75% of CFOs and tax directors consider the EU’s proposals for digital taxation unrealistic, raising serious questions over the EU’s ability to implement those reforms as they currently stand. Furthermore, 76% said that major, recent tax changes had made it harder to structure and finance M&A deals.
Taxand managing director Tim Wach said it was “unsurprising” that multinationals are stalling plans in light of the US reforms, as they are “still grappling to digest and adapt to the changes”, many of which are still unsettled. He noted: “Businesses find themselves treading water and struggling for guidance and clarity on what the reforms will mean in reality.”
Turning to the EU plans, Wach said: “What’s most troubling… is that the proposals appear fully at odds with generally accepted global approaches to international taxation and current international efforts in that regard to align taxation with the geographic location of the substance of business and commercial operations. This perhaps explains why CFOs and tax directors see the proposals as unrealistic.”
He added: “Against a backdrop of substantial global M&A activity, the role of tax is of increasing importance in deals, not least given the degree to which complexity and scrutiny has heightened in recent years.
“Companies are having to navigate the impact of tax changes, such as local country implementation of the OECD’s BEPS recommendations and the profound US tax changes, alongside any potential future tax changes. This is affecting the environment and making it more difficult for multinational deals to take place. Change is happening at pace and companies need to be agile to adjust accordingly.”
A blockchain-powered platform designed to make it easier to conduct trade finance deals in Hong Kong will go live in September, according to the project’s high-profile partners. Built under the guidance of the Hong Kong Monetary Authority (HKMA), the platform is a joint venture from six of the world’s biggest banks: ANZ, the Bank of China, the Bank of East Asia, DBS Bank, Hang Seng Bank and HSBC.
HKMA deputy chief executive Howard Lee said: “This trade finance platform is the first large-scale multi-bank blockchain project in Hong Kong arising from the fruitful results of one of the HKMA’s proof-of-concept works on trade finance in 2017. I feel really excited about the development, as it clearly demonstrates the HKMA’s commitment [to] facilitating and driving the adoption of new and advanced technologies in Hong Kong.”
He added: “The next major milestone of this project is to link up with other trade platforms in other jurisdictions to further facilitate cross-border trades.”
Vivek Ramachandran – global head of growth and innovation in HSBC’s commercial banking arm – said: “The announcement is further proof that blockchain has the potential to digitise trade by eliminating inefficient processes and reducing the amount of unstructured paper.”
A programme designed to keep cryptocurrencies under tight scrutiny and prevent them from harming global markets has been published by the Financial Stability Board (FSB).
Contained in the FSB’s 16 July publication Crypto-assets: Report to the G20 on work by the FSB and standard-setting bodies, the framework has been devised in partnership with some of the finance world’s most authoritative watchdogs, including the Committee on Payments and Market Infrastructures (CPMI), the International Organization of Securities Commissions (IOSCO) and the Basel Committee on Banking Supervision (BCBS).
Announcing the report’s publication, the FSB said that, while it believes crypto-assets “do not pose a material risk to global financial stability at this time”, there is a need for vigilant monitoring “in light of the speed of market developments”.
It further explained: “The monitoring framework focuses on… the transmission channels from crypto-asset markets to financial stability. Monitoring the size and rate of growth of crypto-asset markets is critical to understanding the potential size of wealth effects, should a decline in valuations fall. The use of leverage, and financial institution exposures to crypto-asset markets are important metrics of transmission of crypto-asset risks to the broader financial system.”
The FSB added: “The framework also includes metrics on trading volumes, pricing, clearing and margining for crypto-asset derivatives. Metrics on exposures will become part of the framework to the extent that they become available.”
Welcoming the FSB’s stance, Nigel Green – founder and CEO of independent financial consultancy deVere Group – said that the report demonstrates that cryptocurrencies are “undeniably part of mainstream finance”.
He noted: “There’s now surging awareness of the value, need and demand for digital, global currencies in a digitalised, globalised world. The world of money has fundamentally changed – and despite what some crypto cynics want, it can’t – and will not – go backwards. Therefore, the FSB’s proactive and positive work in this sector must be championed.”
For full details on the FSB’s crypto-assets monitoring framework, read the full report here.