Best Bank Awards: HSBC

Over the past year, emerging markets (EM) have profited from decades-long low levels of volatility in the G10 foreign exchange space as investors seeking yield have shifted their focus to EM and frontier currencies.

With its broad footprint in EM and particularly deep roots in Asian currency markets, HSBC was well positioned to take advantage of this shift.

While the trade dispute between China and the US has weighed somewhat on investor appetite for EM currencies, it has not materially impeded trading volumes in certain pairs. Some have fared particularly well, notably the Hong Kong dollar versus the US dollar.

According to the Bank for International Settlements’ latest triennial survey, USD/HKD volumes increased to a daily average of $219 billion this year, showing a rise of 185% on worldwide activity in 2016.

As liquidity flowed into the currency this year, USD/HKD experienced bouts of volatility in the forward curve, which required HSBC to remain vigilant in providing steady liquidity amid changing conditions, says Selene Chong, head of global FX & commodities, Asia-Pacific at HSBC.

“We focused a lot of our time on tailoring solutions that help clients manage their risk more efficiently and effectively, from developments in outsourced FX executions to balance sheet hedges to deal-contingent trades,” she says.

While many EM currencies face restrictions, Chong sees a general opening up of restricted markets, most notably in China.

This development is particularly significant for investors who previously may not have had access to the onshore market

Selene Chong, HSBC

As part of its effort to promote the renminbi as an international currency, the People’s Bank of China broadened onshore access of the Chinese currency to offshore investors in June 2018. The new rules allowed investors to choose between onshore and offshore FX and derivatives markets to hedge their qualifying onshore bond and equity exposures in China.

“This development is particularly significant for investors who previously may not have had access to the onshore market,” Chong explains.

“The relaxations on more permitted underlyings [for accessing onshore FX derivatives in China] have also resulted in some development in the corporate space,” Chong says.

HSBC has worked with its clients to risk-manage the repatriation of dividends by accessing onshore FX market rates.

“Through HSBC’s centralised model, they not only have [onshore] access but [they] can do it efficiently from anywhere in HSBC’s global network,” Chong emphasises.

The liberalising momentum is afoot elsewhere in the region, with a push in Malaysia to provide non-resident market participants with greater access to the onshore market, while similar recommendations have been made in India.

And, as volumes begin to flow towards these currencies, HSBC has seen demand for more execution and risk management options. To this end the bank is working to expand its FX overlay and custody-related FX offerings in the region.

On the execution side, Chong points to an increasing interest in algorithmic execution for EM currencies in Asia-Pacific from HSBC’s corporate client base, particularly non-deliverable forwards.

EM driving forces

The trend towards more electronic execution and increased use of risk management solutions can also observed in the emerging markets of Europe, the Middle East and Africa (Emea) where the bank has seen a significant increase in FX volumes in several currencies over the past year, says Richard Oliver, head of cash FX trading for Emea at HSBC.

The most important aspect of delivering price in less liquid products is consistency

Richard Oliver, HSBC

While the reasons for such increases are largely idiosyncratic, Oliver says “the most powerful driving forces of investment flows would be the liberalisation of some Middle East and North African markets, low global yields, and low volatility in FX generally”.

To meet the increasing demand for these currencies, he says HSBC has invested significantly over the past few years in the quality of electronic price-generation and risk management solutions to deliver competitive prices to its broad client base.

“The most important aspect of delivering price in less liquid products is consistency,” says Oliver. “Our clients want consistent costs of execution and very few firms can provide consistent pricing through varying volatility regimes.”

HSBC was voted Best bank for EUR/GBP at the 2019 FX Week Best Bank Awards, as well as the best bank in four other categories: FX in Asia-Pacific, emerging Emea currencies, emerging Asian currencies and the renminbi.

The full list of winners of the 2019 FX Week Best Banks Awards