Heightened forex risks haunt Singapore-listed firms

1 in 3 firms is vulnerable.

More listed companies are at risk of losses as global currency volatility escalates, the latest Financial Stability report from the Monetary Authority of Singapore.

Due to the open nature of the Singapore economy, a significant portion of corporate borrowing is denominated in foreign currencies to finance regional expansion and trade, the MAS said.

“Firms could face currency risks if they have unhedged foreign currency debt, or if they have trade or investment linkages — including customer and supply chain relationships — that are denominated in foreign currency,” the report noted.

Using regression analysis to assess the relationship between stock performance and currency movements, MAS estimated that almost half of all listed firms were sensitive to foreign currency movements, with up to 30% of them vulnerable to a weakening of regional currencies against the USD. 

“Most of these firms tend to be financially stronger, hold ample cash reserves, and are better able to hedge against currency risks, compared to the median firm. Some smaller firms with unhedged currency risks could be vulnerable, but they do not pose systemic risks to Singapore's banking system,” said the report.