Despite dark predictions for a long, drawn-out hit on trade as a result of the Covid-19 pandemic, trade transaction volumes in Asia finished 2020 ahead of 2019 levels, according to HSBC. Proprietary data from the global trade bank, seen by GTR, shows that the number of guarantees, trade and receivable finance products taken up month by month in 2020 overtook 2019 levels in September, and stayed above year-prior levels throughout the fourth quarter.

“It was very difficult to predict what kind of recovery would take place. At a certain level, we looked at our data and we were quite amazed,” says Ajay Sharma, regional head of global trade and receivables finance, Asia Pacific, at HSBC. “When we looked at the data in July, we could see that working capital cycles were stretched, past dues were quite wide, and there was stress in the banking system. Today, all of this is back to normal. I don’t think any of us could have expected to see it bounce back so quickly in this way.” He adds that, in terms of transaction volumes, the fourth quarter of last year was the best in the last eight. “This just speaks to the strength of the recovery that we are seeing,” he says.

Back in July last year, HSBC’s data – which covers 5 million annual transactions across Asia – showed that order sizes were around 10-15% lower than 2019 levels, suggesting that the volatile economic backdrop was weighing on buying decisions. While transaction sizes have yet to recover, Sharma says that the gap has now narrowed, and is around 10%. “There is a degree of confidence that has come back,” he says.

A closer look at the breakdown of the data reveals that the overall book growth was entirely driven by receivables and supply chain finance, with transaction volumes of core trade products remaining below 2019 levels for the entirety of 2020.

“The product mix has changed,” Sharma tells GTR. “As a percentage of our total book, receivables financing, supply chain financing and anything structured that sits in the working capital space, has gone up. Meanwhile, the core trade book has been shrinking over multiple years, and we have seen that trend continue. On an overall Asia basis, as supply chains get far more embedded, they don’t need a letter of credit in the middle. It is still early days but that appears to be the direction of travel.”

By August last year, HSBC reported its supply chain volumes in the region were 50% above year-ago levels. According to the new data, which tracks volumes to the end of December 2020, this figure has now grown to 100%, which Sharma attributes largely to new customer demand rather than take-up of dormant structures. “Increasingly, people want to make sure they shield their supply chains from any liquidity issues that might hit,” he says.

The extent to which this apparent recovery will hold, however, remains uncertain. According to research by Joanna Konings, senior economist at ING, the current shipping container shortage may hold back trade volumes from rising much further.

“Shipping liners reduced ocean freight capacity by cancelling scheduled trips for some container ships, leaving containers stranded and creating acute shortages of empty containers,” she says.

The impact of this has been particularly acute in Asia, as the pull of goods to Europe and the US has left the region’s major trading hubs short of containers, potentially holding back exports in the coming months.