International Accounting Standards are expected to cause Asian corporates to slacken off on hedging strategies considerably next year. IAS 39 is being adopted at different speeds by corporates in the region, depending on the scale of their international reach, but overall liability hedging is expected to slow down.
"The liability side of the business will be slower next year as IAS 39 will have more of an impact," said Jamie McWilliam, executive director and Asian head of the derivative sales and solutions group at ABN AMRO in Hong Kong. "It's like a lobster pot; end-users going into IAS 39 are unlikely to come back out."
The accounting regulations will in particular make selling options to reduce financing costs less favorable, continued McWilliam. Corporate derivative sales officials in Europe have already seen clients withdraw from option-based hedging because the mark-to-market accounting treatment for the instruments adds volatility to the balance sheet (DW, 9/10/04).
Despite the expected slowdown for fixed income derivative pros on the liability side, there is a bright spot next year. "The asset side of the business with corporates will continue to grow, in particular as SMEs are accumulating cash and becoming a very important client base," added McWilliam.
