INTERNATIONAL BANKING | 7 December 2020

FX lessons from 2020

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Chris Paizis

Head: Corporate FX and International Banking

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What corporates learnt about FX in 2020

Businesses learnt many hard lessons in 2020 – as one would expect in such an eventful, disruptive year. Chris Paizis, Head of Corporate FX and International Banking at Absa Group, describes 2020 as “a great year for foreign exchange (FX)”. It’s a surprising take – until you hear him unpack the trends and learnings that corporates picked up through the COVID-19 pandemic, the economic downturn, the move to remote working and beyond.

1. The FX market is mature

When the COVID-19 crisis peaked in March 2020, there was tremendous volatility in the South African rand, combined with a spike in volumes driven by cross-border flows, emerging market risk-off and investors rebalancing their global portfolios. Yet the FX market reacted quickly to it all, pricing up large transactions very quickly while the online platforms remained crisis-proof. “FX came into its own in 2020,” says Paizis. “There was never a question of instability in the market, and that highlighted how mature the market is.”

2. Information is an asset

Rumours, fake news, misinformation… Call it what you will, the early weeks of the COVID-19 pandemic had plenty of it. “One of Absa’s most valuable commodities is information,” says Paizis. “Fortunately, the digital way of working has made it a lot easier to share a lot of information with a lot of people very quickly. Our research and advice were very useful to them at a time of great uncertainty.” Find the latest updated forecasts, analysis and reports on the Absa Access research portal and here.

3. Liquidity may seem plentiful, but it’s extremely valuable

Absa’s International Banking team has an unofficial motto: “FX is about more than FX.” That was truer than ever in 2020, as global businesses battled with liquidity challenges and corporate treasurers found themselves managing liquidity not only in their home markets but in 20 or 30 other markets as well. “There were some very quick phone calls to their bankers around how to manage that,” says Paizis. “The forex market provided a reliable avenue for short-term liquidity, as opposed to straight funding through a bank.”

4. Markets are more interconnected than ever

A virus born in Asia spreads to Europe, causing risk-off behaviour in the United States, which hits emerging market currencies in Africa. If you didn’t believe in the idea of a global market, 2020 ended the argument. “The weakness in the rand had little to do with the rand,” says Paizis. “Underlying issues in South Africa are not of great importance when you have a major global event like COVID-19.”

5. Different markets are equally resilient

In terms of foreign exchange, Paizis says there is equal resilience between developed and developing markets in terms of their operations. “We learnt this year that particular industries perform the same whether you’re in an emerging market or a developed market,” he says. “Supermarkets, for example, continued to do well whether they were in Brazil or in Canada.”

6. Crisis brings opportunity

COVID-19 was, by any measure, a tragedy, but while some economic sectors were severely impacted, others found opportunity. “It’s like A Tale of Two Cities,” says Paizis. “We saw fewer forex flows out of tourism, for example, but the agri-export industry did exceptionally well, as it was able to export at better rates than ever.”

7. Banks and clients need close relationships

“As a bank it’s absolutely in your interest to ensure your clients get through this cycle, and as a client you absolutely need to be partnered in a trust relationship with your bank,” says Paizis. “By working together we can protect the underlying economy from shocks like the one we experienced in 2020.”

8. Have your tools ready

The FX market tends to be ahead of the curve in terms of digital technology, but 2020 saw a huge uptick in interest and adoption. “Pre-COVID, our clients used a lot of technology – be it multibank pricing aggregators or Absa’s online currency trading tool – but transactions were still heavily weighted towards telephone calls,” says Paizis. “The crisis brought immediate focus, as clients who were working remotely needed safe and reliable online platforms, which we were already offering but some of them weren’t yet using.”

9. Adapt or die

Some lessons were learnt very quickly in 2020 – few more so than the almost-overnight migration to remote working. “We’d planned ahead around it, so the initial impact was really just fear of the unknown,” says Paizis. “The real learning for us was that all corporations – banks included – need to be very nimble if they’re going to survive a crisis. Retailers are a good example: they learnt the importance of import substitution, of being very close to the pricing of their products and of being agile.”

10. Be prepared for anything

This is perhaps the hardest lesson of 2020. “You don’t see the crash coming until it comes,” says Paizis. “Who would have thought, at the start of the year, that major airlines, tour operators and cinemas would soon be going bang?” For Paizis, the lesson is clear. “It’s about making sure that we have the reserves and controls in place to protect our client base and our shareholders when something like this happens. And – as we learnt in 2020 – we do.”

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Chris Paizis

Head: Corporate FX and International Banking

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