In 2018, rising tensions in a trade conflict that was initially shrugged off as posturing led investors to rethink markets, especially amongst FX pairs involving the US and the nation states it was targeting.

The US, Canada, and Mexico came to a last-minute agreement in October on a revised trade deal with the potential to replace NAFTA. The Trump administration has imposed tariffs on US$200 billion worth of Chinese goods with threats to cover a further US$267 billion should China retaliate — the sum of which would cover almost all Chinese exports to the US.

“Trade-related tensions between the US and other countries set the stage for an interesting thematic opportunity. It was mooted that escalation or de-escalation scenarios could lead to opposite responses in the related currency pairs,” said Ken Tan, head of FX investors solutions, WM&FO, global markets APAC at BNP Paribas.

Indeed, American policymaking decisions, especially within the Trump administration, have become increasingly unpredictable for market participants. Rather than taking a binary view on escalation or de-escalation, BNP Paribas demonstrated its advisory capabilities by providing an innovative solution focused on the magnitude of price movements instead of direction.

“Instead of expressing a specific directional view, we proposed payoffs where clients may potentially receive enhanced yields if the currencies move — higher or lower — from their initial levels at trade inception.”

The bank exhibited non-flow capabilities particularly from two standout structures: a USDCNH straddle certificate linked to gold, and a worst-of straddle linked to trade war-related currencies such as EUR, CNH, CAD, and MXN.

The bank’s nimbleness and swift time-to-market also came into play in the wake of the global risk aversion that led to a selloff of emerging market currencies and led to a window of opportunity on the lira for investors to receive a reasonable coupon through a USDTRY digital certificate.

Innovative solutions that have capitalised on directional uncertainty and quick moves to exploit short-term opportunities led Asia’s private banks to vote BNP Paribas as 2018’s Best Structured Product Provider – Non-flow FX.