Risk management critical for corporates amidst Asia’s uncertain trajectory in 2016

As economic uncertainty looms over Asia in 2016, the need for Singapore businesses to have well-thought out risk management strategies is even more acute.

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By Steven Cranwell, Managing Director and Head of Commercial Banking, HSBC Singapore

There has always been a link between a corporate's ability to manage their risks and their business performance.

And in these volatile times, we can expect that this link will again be of particular focus.  

The past eight months or more have proven tough for companies off the back of China's economic re-balancing and volatility across markets. And if the first quarter of 2016 is anthing to go by, we can expect more of the same for the rest of the year.

Businesses seem to be still adapting to economic and political developments that have altered the terms of trade for local importers and exporters. Additionally, widespread volatility currency and commodities look as though it is here to stay as well.

Asia to remain the global engine of economic growth

This doesn't mean that corporates in Singapore should quickly look to clamp down on their operations in the neighbouring Asian markets. And for many businesses here, this is not a realistic option, given the tight interconnectedness of Singapore and the other Asian markets.  

Asia may be decelerating from a period of super-charged growth, but it is not going into reverse. The region continues to stand out as the world's engine for economic growth and there are still opportunities for business growth.

Asia's opportunity is its diversity: each country within the region has its own unique economic circumstances and differentiated growth drivers so the impact of the big picture trends tend to play out differently from place to place.

Risk management the key

With uncertainly and volatility currently prevailing, it is critical for corporates to have well-considered risk management strategies.

The key to this is for corporates to reflect upon and scrunitise more closely the apparent and prevailing risks within their business.

It does not necessarily hold true that in these times a company should simply resort to severely cutting costs.

A medium-sized exporter, for example, may not have paid close attention to currency fluctuations during more stable times, but the current period may represent the best time to reconsider their position, take on advice and mitigate these risks.

Meanwhile, a large multinational that conducts its business across several Asian countries may like to assess whether its treasury department is adequately managing its liquidity and or working capital cycle across markets.

Forging closer relationships along the supply chain

Furthermore, building greater corporate financial agility could also encompass committing to long-term collaboration with key suppliers.

This could be through the sharing of sales information with manufacturers in the supply chain to more accurately meet projected schedules and ensure inventory remains at an optimal level.

Leveraging trade pacts: AEC and TPP

Businesses in Singapore can take comfort that over the longer term they will be well-placed to benefit from various free trade arrangements negotiated through the Asian Economic Community (AEC) and Trans-Pacific Partnership (TPP).

Both are developments that can be expected to markedly alter the dynamics of trade in Asia over time.

Similar things can be said about the Belt and Road initiative – China's ambitious plan to connect Europe and Southeast Asia via interlinked land and maritime trade corridors, with an estimated USD2.5 trillion over the coming decade expected to be deployed[1]. We can expect aspects of this initiative to take shape during 2016.

All of which means that while there might be near term concerns for business prospects, there is good reason to remain optimistic.

While 2016 may have its share of challenges, corporates that are committed to the region and are able manage their risks properly to safeguard their future will be well-placed to benefit from the next wave of growth.

1. Reuters. China's Xi: Trade between China and Silk Road nations to exceed USD2.5 trillion. http://www.reuters.com/article/us-china-economy-oneroad-idUSKBN0MP0J320150329

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