Pandemic shrinks foreign exchange trading in major hubs but Singapore, Tokyo grab market share at HK’s expense

12-Aug-2020 Intellasia | South China Morning Post | 6:02 AM Print This Post

The coronavirus pandemic has chilled one active corner of the global financial markets by shrinking the volume of currency trading in major hubs. Singapore and Tokyo grabbed market share as Hong Kong slipped.

Average daily turnover in traditional foreign exchange and currency derivatives in seven markets declined 11.4 per cent to $4.93 trillion in April from October, according to semi-annual data published by separate industry groups in Australia, Singapore, Hong Kong, Japan, the United Kingdom, United States and Canada.

Singapore’s volume grew 0.3 per cent to $549.5 billion per day, making it the biggest market in the Asia-Pacific region, according to a local foreign-exchange market committee. Hong Kong’s volume shrank 7.8 per cent to $524 billion, the Treasury Markets Association said on Monday.

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Such transactions rose 6.5 per cent in Tokyo, and fell 7.2 per cent in Australia and 9.1 per cent in Canada. While London retained the crown as the biggest currency-trading market globally, its daily average volume shrank the most, by 16.3 per cent to $2.4 trillion from an all-time high in October. New York suffered a 14 per cent drop to $765 billion.

“Currency trading was held up at the height of market volatility caused by the coronavirus pandemic,” said Ken Cheung Kin-tai, Hong Kong-based chief Asian currency strategist East Asia Treasury Department at Mizuho Bank. “The shock meant it was difficult to assess the impact of the virus on policies, liquidity and economy.”

The new coronavirus, which was first reported in Wuhan late last year, triggered a global public health crisis and also disrupted markets. Banks sent workers home, reduced operating hours at branches and trimmed staff, all contributing to market upheavals.

The latest statistics come as a setback to Hong Kong’s aim to upstage Singapore after a neck-and-neck race in the currency trading market. The city has been mired in four straight quarters of economic contraction, its worst recession on record. The pandemic and fallout from the contentious national security law have become front-and-centre issues for a government caught up in US-China confrontations.

Average daily trading in Singapore rose 24 per cent to $639.9 billion in 2019 from 2016, according to a triennial survey published by the Bank for International Settlements in December, based on a different methodology. Hong Kong’s volume grew 45 per cent to $632 billion in that span.

To maintain its lead, Singapore has wooed global banks including UBS, Citigroup, Standard Chartered and JPMorgan Chase in recent years to set up foreign exchange pricing and trading engines to reduce the time lag in routing trades from elsewhere.

The setback in April may be temporary, according to Cheung at Mizuho.

“Trading volume has since improved as financial markets have digested the initial impact from Covid-19 cases,” he added. “The Federal Reserve’s subsequent monetary policy easing has eased liquidity conditions.”


Category: Japan

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