With global trade growth forecast to grind to a halt in 2017, Asia’s trade sector is facing up to a depressed immediate future.
At Asia’s largest trade and treasury gathering in Singapore this week, HSBC’s global head of trade and receivables finance Natalie Blyth predicted that global trade would slow to 0% growth next year, with just 1% real growth in 2016.
Successive speakers at GTR Asia Trade & Treasury Week 2016 warned of the perils of protectionism, others bemoaned the continued commodity slump, but there was a palpable sense of realism: Asian trade, as with many parts of the world, is facing a raft of unprecedented challenges in the political and economic sphere. Its ability to navigate these may dictate the success of the next decade.
The global trade finance gap stands at US$1.4tn, with around US$700bn of that in developing Asia. This is the area of the world that will produce the biggest addition to the world’s middle class (3 billion by 2050) and which provides the greatest opportunity for trade and investment.
Furthermore, this is the part of the world most expected to deliver growth. The EU has only just returned to the same size it was before 2008’s global financial crisis. It has effectively gone nowhere in the past eight years. The US has grown by 12% in the same period, which looks impressive next to Europe, but which pales in comparison to the 85% growth in China over that time.
And yet, many banks are fearful to lend to companies in emerging Asia. The Chinese growth story was once spurred by exports, then by investment and now by services. Levels of indebtedness are high and lenders are spooked.
Meanwhile, commodities markets have yet to recover from the end of the supercycle and the lending to that sector in Asia has changed dramatically. “There is a deficit in finance available for small traders: unless you’re one of the top eight or 10, it’s difficult to find support,” said William Shaw, managing director of Texel Asia.
The situation was described as a “world of uncertainty” by Paul Gardner, the global head of structured commodity finance at Westpac, who said that banks are having to work harder to find money to lend (and borrowers who tick all the boxes), given the rising cost of capital.
What’s more, central banks, which have provided much of the banking sector’s liquidity through lengthy quantitative easing programmes, are running out of bullets.
He said: “There are a lot of warning signs out here and on top of that there’s the regulatory environment. If you have a dollar to spend or make, at the moment you’re playing safe.”
This trend is driving smaller producers to their trading houses for debt finance, a trend which is not new, but which is growing – particularly in Singapore. Other players emerging on the scene include hedge funds, which are exploiting the hole left in the market by some international banks. Local banks continue to provide some source of liquidity for small and medium-sized producers.
“Who’s acting on the market? It’s clear the banks are focusing on big names,” said Matthew Cox, commodity transactional expert and Simmons & Simmons partner. “Some of the smaller deals are getting done that would not have got done in the old days. There are fewer deals, so single cargo deals are now within the scope of financiers.”
The overall picture was one of trepidation at the conference. With the spectre of Trumpism looming large and the effect of Brexit still unknown, nervousness pervades, as Asia awaits what could be a defining era for the global trading system.