A lower Australian dollar (AUD) would not spark offshore expansion aspirations for Australian corporates, suggests research by banking analysts East & Partners.
The results are part of the firm’s Australian Dollar Barometer, structured from interviews with up to 900 actively importing and exporting Australian enterprises and a key monitor of business owners’ AUD/US dollar (USD) expectations, forward risk management plans and FX exposure appetite.
Only 26.3% of surveyed chief financial officers (CFOs) and treasurers indicated they would investigate international operations following a sustained decline in the AUD. Small and medium enterprises (SMEs) turning over less than A$25m per annum were the least inclined to expand offshore despite a sustained sell-off in the AUD/USD over recent months.
“The reluctance of businesses to consider offshore exporting opportunities despite a lower dollar speaks volumes of their tenuous business FX standing, offering an opportunity for banks and FX providers alike,” the firm comments. “Confidence is crucial.”
Small businesses nominate concerns over transaction security as a major impediment to increased business FX exposure, ranking ahead of the cost of execution and their FX provider’s reputation.
Forty-eight per cent of institutional enterprises turning over A$500mi or more per annum were uncertain about their strategic response to a lower AUD/USD. This indicates a major degree of apprehension for the segment which is characterised by a high number of exporters.
Although exporters would seemingly welcome an improvement in competitiveness following a slide in the AUD, they clearly remain unconvinced as to the long term trend for a lower exchange rate buffeted by commodity prices and central bank policy decisions, reports East.
Smaller businesses retain a heavy import weighting and face a period of uncertainty in terms of hedging and risk management; indeed over half of the segment is heavily exposed to intensifying volatility. Yet 56.8% of SMEs do not plan to hedge their FX exposures, compared to 3.7% of upper corporates and 2.8% of institutional enterprises.
Greater numbers of importers plan to hedge ever expanding business FX volumes using spot FX, options and forwards instruments; 93.3% of importing only businesses plan to hedge on average 89.2% of their exposure, compared to only 48.5% of exporters intending to hedge 83.3% of their business FX volumes.
“The results clearly reflect the disparity in trade profiles and priorities of large corporates versus small business owners,” said East & Partners senior markets analyst Martin Smith.
“Although transaction security is nominated as the biggest barrier for smaller businesses seeking to develop a broader international presence, larger businesses are heavily influenced by their existing primary banking relationship in addition to the core price point”.
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