While some in Singapore say life is beginning to return to normal since the height of the Asian currencies crisis, with volumes picking up and confidence returning, others say that the recovery may not be robust enough for banks to justify keeping trading desks fully staffed.
In the past, the off-shore funds business kept a lot of people fed, but this business has shifted from FX into equities during the first half of 1999. Furthermore, the corporate business that does exist in Singapore is fairly limited.
“Banks have definitely overestimated the amount of money they can make out of the domestic corporate market here,” says an FX manager in Singapore. “Some of the investment banks like Morgan Stanley, Goldman Sachs, Deutsche and Bankers Trust are seeing a lot of this and the off-shore funds business, but the rest are here just because they feel they have to-and they’re feeling the pressure.”
Traders in London are saying that their branches in the Far East are suffering what they call a “vicious circle” in centres such as Singapore, where a lack of customer activity is hurting what little liquidity exists.
“What we’re finding is, when customers do come into the market, there’s no liquidity so the prices are quite wide. They are finding they get better quotes out of London, so they’re sending their business that way, which is further drying up liquidity locally,” says a global FX manager based in London.
But not everyone agrees with this summation. “There are definitely periods where liquidity has been tighter than other times this year, but we haven’t really seen a deferral of preference to London over Asia,” adds a manager in Singapore.
“I think there will be a core of big banks that are able to execute decent size at decent levels, but the niche players will find that they have no business outside their own domestic currencies and the yen,” says another FX manager.
This manager points out that a lot of the niche players are going back to a “centres of excellence” approach, whereby Singapore and Hong Kong handle regional currencies, Tokyo covers G-5, and Sydney handles Australian and New Zealand dollar trading. CIBC took this approach earlier this year, when it closed its Singapore, Hong Kong and Taiwan offices and relocated its operation to Tokyo.
Technology is also key to banks’ survival. “With technology advancing as fast as it is, you have to be a global player. The chasms between the have and have nots are going to get greater and we’re going to continue seeing mergers over the next few months-whether its Chase and Merrill Lynch, HSBC and State Street, NatWest and ING, or some other combination,” says a treasurer in Singapore.
This means that banks will need to reassess their strategies. With electronic trading accounting for the bulk of brokered spot trading in the region, this environment means that banks may not need to continue operating large trading rooms.
“There has been an interesting change in terms of staffing. Banks are more interested in hiring people with multi-product skills such as derivatives and structured products,” says a source. “The old days of the ‘smile and dial’ sales dealer are gone. Today, you need that extra skill set to compete-which is why many banks are now looking for MBA candidates for sales desks.”
But others say that the market is still alive and, contrary to what traders in London may be saying, traders in Singapore say the currency market is recovering, not dying.
“The market has been very quiet and turnover has decreased, but volumes, particularly in NDFs [non-deliverable forwards], have definitely been picking up over the last six months,” says Chris Howlett, FX manager for National Australia Bank in Singapore.
The NDF business in the Korean won has been one of the recent highlights in the region. “Korea opened the doors between the offshore and onshore markets, so activity has been gaining momentum,” adds Lam Kun Kin, CitiGroup’s FX manager in Singapore.
“The bid/ask spreak has collapsed, so getting in and out of Korean won positions is much less expensive than before,” he adds. Market participants say that Citi, Chase and Standard Chartered are among those most active in the Korean NDF market, both in Singapore and onshore in Korea.
Another attraction of Korea is its inherent corporate business from companies such as Samsung and Hundai, which have natural business to conduct.
“Over the last two to three years, we have seen a contraction of the regional economies and a subsequent scaling back of activities by most regional bank branches. But now, we’re starting to see a selective reactivation of those businesses on a case by cast basis, such as in Korea. If the business continues to improve over the next five years, we could see a reactivation of banks’ activity here, but that’s not something that’s around the corner.
In addition to the NDF market, dealers say the CTA community is beginning to introduce a bit of volatility into the time zone. And a few Japanese banks in Singapore, such as Sanwa, are keeping some proprietary activity alive.