East & Partners had some bad news for SMEs earlier this year: The majority of small businesses aren’t making FX exposure mitigation a priority. In its latest report, East & Partners has even more bad news.
According to researchers on Wednesday (Sept. 21), there hasn’t been much improvement in the number of SMEs that are taking FX risk mitigation seriously.
Canadian small businesses came out on top as having the highest portion of SMEs that use FX options to protect themselves against FX volatility exposure, though that portion comes in at just 29 percent. U.K. SMEs, meanwhile, have just 20 percent of their SMEs taking advantage of an FX hedging tool.
But East & Partners said there is reason to believe that usage of forwards and options by SMEs to mitigate FX risk is on the rise.
In Asia, for instance, East & Partners Asia Head Amit Alok said SMEs are becoming more proactive in this regard.
“The latest round of research reveals surprising currency trading volume forecasts but, most importantly, confirms businesses in the Asia region are moving away from a reactive stance to FX market volatility and instead removing the potential downsides from dealing with unpredictable FX markets at relatively low cost,” he stated.
Analysis revealed that Asian businesses, both micro and SMEs, engage with options and forwards tools at higher rates than their peers in other geographic markets. Singapore SMEs use forwards at the highest rate (46.2 percent), and the country’s options usage surpassed others, too, at 37.2 percent. Hong Kong trails close behind.
New Zealand businesses, meanwhile, favor the FX forwards market, the report found, as more than three-quarters of SMEs use the tool.
However, E&P added, the increased use of these tools has led to consequences for the FX risk mitigation market overall.
“The increased engagement, particularly among lower corporates, which is approaching new universal uptake, has led to an increasingly fragmented business FX market as banks battle with newer providers for market and wallet share,” reports summarized.
Alok attributed this rise to “the high level of cross-border trade, multicurrency cash management and increasing usage of regional treasury centers.”