Only 1 in 5 Asian SMEs use FX options and forward FX

Malaysian businesses are the least engaged in these products.

According to East & Partners, Asia is full of Small and Medium Sized trading businesses and while the use of Spot FX is increasingly universal, engagement with hedging products such as FX Options and Forward FX is currently less widespread.

East & Partners has just completed the first Asian Small Business FX Markets review, interviewing 1,400 businesses across four jurisdictions: Hong Kong, Malaysia, Singapore and the Philippines.

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The program focuses on two critical smaller business segments: Micro businesses turning over between US$1-5 million each year and Small and Medium Sized (SME) enterprises with annual revenues of US$5-20 million. These two segments represent by far the largest proportion of all business enterprises in the region.

The research shows that while 100 percent of the businesses are using Spot FX products, only one fifth (19.4 percent) are using FX Options and 21.0 percent Forward FX. The average product cross sell ratio was 1.4, meaning that the average Micro or SME business in Asia is engaging with 1.4 FX products.

In terms of product penetration, businesses in Singapore and Hong Kong tended to be more engaged with these products.

Singapore, for example, accounts for 30.3 percent of Forward FX product penetration of the four jurisdictions, and 30.9 percent of FX Options trading.

Malaysian businesses are the least engaged, with penetration of around 18.0 percent for both products, although the report also delivers evidence that some Malaysian businesses are using Singapore as their FX hub.

The report also looks at the market share of the major providers, and while there are several global banks which are prominent across all four markets, each market has a number of local players taking significant market share. 

Boutique providers AMEX and Western Union have a presence across the region and while their market shares are both in the single digits their customer satisfaction levels are high, even though their Mind Share – the number of businesses which recall them first in association with FX products – is still at a low base.

Also of interest is the performance of Australia’s ANZ, which is five years into its “Pan Asian” strategy and is building regional business both organically, and off the back of its 2009 purchase of some RBS assets.

Although not strongly focussed on these small business segments and whilst ANZ has a patchy market share performance in Spot FX across the four markets, it does have a much stronger foothold in both FX Options and Forward FX on a regional basis.

Not only is its market share in these products encouraging, but it enjoys market leading wallet share. This means that customers doing their FX Options and Forwards trading with ANZ are spreading their wallets much less than customers of other risk solutions providers.

East’s first ABFX report will function as something of a benchmark going forward. The next interview round of the program is scheduled for early 2014, and market trends and momentum will become apparent as the research continues to cycle every six months.

Already, the inaugural report has provided some interesting areas to monitor as the program continues.