As a direct result of concerns around the impact of FX volatility on global growth and recent volatility in Asia, 25% of treasurers acknowledged that they will increase their hedging activities, while 50% of treasurers stated they were already following active hedging strategies. None of the respondents were planning to decrease hedging.

 

While 38% of treasurers polled said that FX was their primary risk management concern over the next 12 months, 24% stated that interest rate risk was a primary risk management concern for their business. Currently interest rates in the US and across Europe remain at all-time lows but with the US expected to raise rates in the near future this could present business challenges.

 

Dianne Challenor, J.P. Morgan’s head of Treasury Services for Asia Pacific, said, “The continuation of uncertainty in the US around rates, combined with an appreciating dollar, is creating headwinds for businesses who are significantly exposed to Asian currencies. Margins are being squeezed and hedging strategies are challenging to get right, adding complexity to risk management planning.”

 

Challenor continued, “An understanding of inherent external risks when running a business will enable firms to develop robust strategic plans, and help them be better prepared to deal with FX, liquidity, counterparty credit and interest rate risk.” 

 

With a rise in US interest rates on the minds of many, 27% of treasurers are looking to lock in long-term funding by arranging long-dated facilities with banks and financiers prior to any expected rise. At the same time, over 47% of treasurers believe that due to the evolving regulatory environment there would be some deterioration in the ability of banks to provide funding in the future. Only 20% believed there would be an improvement in funding conditions.

 

“Corporations should plan for rising rates and be proactive about an increase in financing costs driven by tighter bank liquidity.  To manage short and long-term funding, a deep understanding of the dynamics and forces behind supply chain and working capital is crucial. Treasurers should target a capital structure that provides financial flexibility to fund and sustain long-term growth,” said Gourang Shah, J.P. Morgan’s head of Solutions & Advisory Services for Treasury Services in Asia Pacific.

 

China continues to be at the forefront of many treasurers’ minds with 13% believing a slow down would materially impact global growth in the near future. However, 34% of companies are still looking to Greater China to boost their company’s growth over the next five years. Specifically regarding China, almost 90% of respondents confirmed that they are already operating in the country, with one-third saying that de-regulation of the country’s financial system would encourage them to do more business there in the future.

 

China’s economy posted 7.0% growth in the first quarter of 2015, in line with forecasts from J.P. Morgan’s economists. The firm forecasts full year growth to slow from 7.4% in 2014 to 7.0% in 2015. Maintaining stable economic growth was listed as the top priority by China’s economic policy makers for 2015 and this is expected to be supported via monetary policy easing and through a mixture of traditional and unconventional monetary instruments such as the reserve ratio requirement.

 

Challenor said, “Despite the slowdown in economic activity, our clients remain committed to doing business in China and seeking further growth opportunities. This shows a strong belief that the medium to long-term opportunities in China remain promising.”

 

Muhammad Aurangzeb, J.P. Morgan’s Head of Corporate Banking for Asia Pacific, said, “The role of the corporate treasurer has expanded significantly since the financial crisis. Today, the ultimate goal is to create shareholder value by optimizing capital use while mitigating risks from external factors at a local, regional and global level. This is the where global banks can provide products and services to assist theirclients.”