A recent corporate treasurer survey conducted by JP Morgan highlighted how China’s economic slowdown has emerged as the biggest concern for companies, with 48% of respondents rating this as the most significant problem, an increase from 13% in the first quarter of 2015.
In addition to this, Chinese economic growth has slipped to 7% in 2015, but expect to grow by 6.6.% in 2016 as the country moves from being an investment led, export driven economy to one that is based on consumption and services.
CEO of corporate banking, Asia Pacific at JP Morgan, Muhammad Aurangzeb, mentions that it is important to recognise that China has a nominal GDP of around $10 trillion which results in hundreds of billions of dollars being added to the economy every year. “The challenge is how businesses align their strategies and structure themselves accordingly in order to take advantage of the opportunities presented as a result of the economy’s changing dynamics,” Aurangzeb said.
Earlier in the year, the top concern for treasurers was foreign exchange volatility, but this has since fallen to second place on the list of issues in the industry because of the depreciation of the renminbi in August.
Aurangzeb continued to say that companies that are significantly exposed to Asian currencies and need to convert back to US dollars will face headwinds. “J.P. Morgan is in constant dialogue with clients to ensure that they have robust hedging strategies in place that will allow them to navigate the current volatility. In addition, China’s currency devaluation in August undoubtedly took many by surprise and this only emphasises the need to treat the RMB as a major currency. I believe that as a direct result of the recent challenges faced we will see further integration of China-based treasury operations into regional treasury centres, which will provide a more holistic view going forward,” said Aurangzeb.
Over 67% of treasurers that were surveyed said that their companies are considering using their surplus liquidity for strategic purposes, such as share buy backs, special payment dividends and for M&A funding.
However, Aurangzeb warns treasurers and iterates that they need to make sure that infrastructure keeps pace with the growth of the business in terms of technology and operations. “Growth can bring its own set of challenges that treasurers need to be aware of and plan for accordingly,” Aurangzeb said.
79% of treasurers agreed that the variety of regulations across different markets has caused a disparity in bank offerings, while 48% said that changing regulations had forced them to consider a broader range of opportunities for investing surplus cash.
“Regulatory change is something that impacts everyone, and J.P. Morgan has committed to remaining at the forefront of these changes and provides the best solutions to our clients to enable them to adapt. Our global footprint means that we are able to offer the broadest range of products across markets to suit the many different needs of the companies that bank with us,” said Aurangzeb.
An upgrade for the US, Europe and Japan is offset by downgrades for Mexico and other major emerging economies.
The Middle East kingdom, which aims to lessen its dependency on oil revenue, plans to cut billions as part of its aim to achieve a balanced budget by 2020, claims a report.
The sixth annual ‘risk barometer’ issued by insurer Allianz also finds that cyber risk has risen to become one of the top three corporate concerns globally.
Andrew Haldane said that the Bank of England’s forecast of a resulting sharp economic slowdown had proved highly inaccurate.