The Asia-Pacific (APAC) region is one of the fastest growing in terms of population. This region in particular is of great importance to the financial services industry, as it is seen as the largest growth market for clients.
APAC is comprised of diverse currency markets that are shaped by various and, at times, competing forces, from global regulation to local capital controls.
The region has been seen as one of the hardest to enter by FX brokers for this reason, as well as grappling cultural or regulatory differences.
In terms of the market as a whole, a series of events over the past decade has resulted in periods of extreme volatility and price spikes.
These have helped increase the randomness in volatility that has been exacerbated by the several structural changes in the APAC FX market.
This includes the impact of prudential regulation on banks’ ability to warehouse risk, the increased cost of continuing to participate in the market, and the competitive edge some institutions have gained through enhancing the sophistication of their platforms.
APAC Outlook for FX Market
The APAC market still looks friendly for development over a longer period though challenges remain for the FX industry.
For example, liquidity is likely to concentrate further among fewer institutions in the decade ahead, which could limit the number of players.
Despite its rapid recent growth China’s FX market is still small as a percentage of GDP and primarily domestic, this points to a clear opportunity for the market to develop further.
Finally, the internationalization of the Chinese renminbi (RMB) is set to be a major force shaping the global financial system.
Consequently, this should make China’s financial markets deeper and more liquid and have significant implications for international investment trends and global asset prices.