The global FX market this year was punctuated by a number of unexpected outcomes: a counterintuitive strengthening of the JPY in the first half; a surprise Brexit that led to the GBP plummeting and; a Trump victory which could accelerate the strengthening of the USD and potentially intensify emerging market currency risks.
Sensing opportunity, some non-flow FX specialists introduced investors to the unchartered territory of FX volatility investing. For BNP Paribas, the key non-flow FX highlight in 2016 has been the introduction of this idea to its clients.
“With the anticipation of the two major inflection points, Brexit and a Trump election victory, a lot of investors were worried about subsequent impact these events had on FX spot,” explains Henry Wong, senior FX structurer, global markets, Asia Pacific at BNP Paribas.
“But rather than taking a long position on FX spot, we introduced the concept of investing in FX volatility to private banks.”
The allure of taking on FX exposure without making directional bets on spot prices has captured the imagination of wealth managers in the region and, through successful collaborations with their private banking counterparts, BNP Paribas developed a first-of-its-kind, globally-traded FX volatility swap solution to end-clients.
In 2017, the bank expects investors to shift their attention to the greenback, especially in light of a newly-elected president that is intent on normalising rates sooner rather than later.
“With the two key risk events now behind us, we expect markets to start focusing on the Fed again in anticipation of higher US rates and with it, a stronger dollar,” says Ken Tan, head of FX investor solutions sales, wealth management & family offices, global markets, Asia Pacific, BNP Paribas, who expects increased interest in multi-currency baskets or cross-asset solutions on underliers such as the DXY index.
An unwavering effort to innovate its offering and deliver differentiated solutions has motivated the industry to select BNP Paribas as this year’s Best Provider of Non-flow FX-linked Structured Products.