TREASURY SERVICES

Managing Risk in an

Era of Disruption

The ongoing trade dispute between the U.S. and China has created uncertainty across financial markets and the global economy. Against this backdrop, risk management has been identified as a top priority over the next 12 months by CFOs and treasurers of leading companies in Asia Pacific, according to a recent survey conducted by J.P. Morgan.1

Treasurers - who serve as financial risk managers for their organizations - need to remain agile as they continue to support their firms' growth strategies while managing increasing market volatility as a result of shifting geopolitical and economic events. This article examines three key areas that treasurers will need to focus on as they navigate this era of disruption.

Managing Supply Chain Disruptions

Tariffs can significantly impact the supply and demand of goods, causing disruption to existing supply chain dynamics and buyer-supplier relationships as companies seek new, cost-effective measures for their businesses. According to the American Chamber of Commerce in China, 35 percent of American-based companies surveyed are considering shifting their production facilities in China to ASEAN countries such as Malaysia and Vietnam, to de-risk exposure to U.S.-China trade escalation and its impact on global supply chains.2 Others are exploring locking in fixed pricing in exchange for longer-term contracts with existing suppliers or finding alternative suppliers of raw materials from regions and markets not affected by trade tariffs.

31%

U.S. companies considered delaying or cancelling investment decisions due to ongoing trade dispute

Source: American Chamber of Commerce China survey, September 2018

Ensuring an efficient global liquidity structure that centralizes and automates liquidity across the entire organization can help treasurers better manage disruptions. A multicurrency notional structure that's integrated within a global cash pool will enable treasurers to centralize surplus balances across regions, subsidiaries and currencies into a single account, providing increased visibility and flexibility to optimally deploy cash to fund supply chain adjustments as needed. Cash flow analysis should also be conducted on an ongoing basis to understand the organization's operating requirements and working capital needs. This will allow treasurers to determine the optimal level of cash for the group and build in cash buffers that evolve with supply chain changes.

Illustration: A global liquidity structure with flexible cash and pooling solutions

Created with Sketch. JPY USD CNY EUR Third-Party Bank Control and automate multi bank funding to optimize your liquidity Centralize your global liquidity position to one account for optimal deployment “Against-the-Sun” capabilities optimize liquidity across regions Leverage excess cash in China to support offshore funding needs Global Pool USD Multi-currency Notional Pool Recognize the full value of your liquidity via multi-currency offset CNY Cash Pool Entity A CNY Entity B CNY Entity C CNY London Account

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Adopting Modular Solutions

Treasurers need to continue to plan and ensure their businesses are well-prepared regardless of market conditions. Managing FX risk remains key amid the volatile currency markets, particularly in the emerging markets (EMs) that have borne the brunt of the sell-off amid the U.S.-China tensions. The normalization of monetary policy in the U.S. and Europe is also expected to result in the further tightening of global liquidity, which could exacerbate FX volatility and capital outflows in the EMs that are dependent on foreign funding. Many corporates have opted for a conservative approach towards investment and are choosing to hold cash; hence treasury decisions on how to best deploy and optimize cash have become more important than ever.

11%

Average depreciation of key emerging market currencies since the start of the trade dispute

Source: J.P. Morgan Global Data Watch as of January 4, 2019

Adopting flexible solutions to centrally manage cash, liquidity and risk can help treasurers cope with prolonged periods of uncertainty. J.P. Morgan continues to invest in new technologies to deliver innovative solutions and support clients' evolving treasury management needs. Solutions such as Just-in-Time Funding can help minimize trapped cash by funding transactions with the right amount of cash as and when needed, while Cross-Currency sweeping allows treasurers to leverage their primary functional currency accounts to fund transactions in non-functional currencies and keep FX exposures to a minimum. Digital solutions like the Virtual Branch and Virtual Account Management (VAM) can also help treasurers further simplify their account structures and streamline payment processes to improve visibility and enhance efficiencies.

Created with Sketch. Just-in-Time Funding Minimizes trapped cash by leveraging a simplified centralized account to fund local currency payments with the precise amount of cash at the exact time needed.
Created with Sketch. Cross-currency sweeps Reduces FX exposures by leveraging a primary functional currency to fund payments in non- functional currencies. The solution keeps balances at zero in non primary accounts that may have less oversight.
Created with Sketch. Virtual Account Management* Helps to centralize, standardize and simplify treasury management by slicing-and-dicing activity on a single bank account. The solution provides visibility and reporting capabilities needed to facilitate accounting, without splitting up cash.
Created with Sketch. Virtual Branch** Simplifies traditional processes and digitizes payments to enhance speed, security and consistency in payment workflows.
Subject to internal and/or regulatory approvals, certain products and services may not be available in all locations.
*Virtual Account Management is currently live in London, Hong Kong, Singapore and Canada. There are plans to further roll out the solution in Australia, China, India and the U.S. by the end of 2019.
**The Virtual Branch solution is currently available in China, India, Indonesia and Thailand.
Created with Sketch. Learn More

Building a Technology-Driven Treasury

With rising geopolitical uncertainties, and as treasurers increasingly take on broader strategic roles within their organizations, technology will become an important resource for treasury teams to deliver more with less.

For example, as markets fluctuate, treasurers may find it challenging to accurately capture FX exposures across business functions in a timely manner to effectively deploy hedging strategies and manage cash flows. Robotics process automation (RPA) can make a difference in this space by helping to efficiently consolidate short-term FX exposures across business functions, calculate variances in currency exposures against approved FX limits and compile market data such FX rates and forward points for exposure monitoring, all without manual intervention. For longer-term FX exposures, treasurers can look to predictive analytics to optimally forecast cash flows based on historical and forecast data, factoring in assumptions about future market conditions.

By extracting the full value of technologies to automate and standardize workflows, treasurers are then able to devote more focus on strategic objectives and support the organization's growth agenda during periods of uncertainty.

New Treasury Calls for New Skills

While finance practitioners recognize the importance of technology in their operations, embracing digitization remains a journey: 52 percent of global finance leaders surveyed by EY have indicated that their current teams lack the necessary skillsets and competencies to operate the more technology-driven teams of tomorrow.3

Treasurers need to focus on upskilling their teams by deepening existing business skills and developing new ones focused on embracing change and technological innovation.
 

Grow existing skills

(select icon to learn more)

Created with Sketch. Cultivate a strategic mindset

Think strategically. Anticipate market changes to stay relevant.

Created with Sketch. Improve business acumen

Understand key business drivers and situations to make better informed decisions.

Created with Sketch. Enhance relationships

Advance interpersonal skills, and develop social and emotional intelligence to better manage relationships.

Develop new skills

Created with Sketch. Become data-savvy

Get analytical. Translate analyses into actionable plans.

Created with Sketch. Stay agile

Embrace change. Get comfortable with shifting priorities.

Created with Sketch. Unleash your creativity

Develop new ideas. Cultivate an innovative mindset.

To learn more, please contact the
Asia Pacific Treasury Solutions team
or your Treasury Services representative

1APAC CFO and Treasurers Survey. J.P. Morgan, September 2018.
2Impact of U.S. and Chinese Tariffs on American Companies in China. American Chamber of Commerce in China survey, September 2018.
3Preparing the treasury function for the future - new people or new technology? EY, March 2017.
4FX exposure management - a new automated approach to solve an old problem. Zanders, September 2018.
5J.P. Morgan Global Data Watch, January 2019.

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© 2019 JPMorgan Chase & Co. All rights reserved.

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