As with any asset class, there are obvious differences in perceived quality among specific Trade instruments, depending upon the counterparties involved, the nature of the underlying transactions and other risk factors. And, of course, not all Trade activities involve the exchange of physical goods, since the financing of professional services contracts (for example) falls under the Trade umbrella as well. In general, however, Trade-based transactions are viewed as a more stable form of risk and are documented, priced and (where applicable) rated more favorably than other forms of non-government financial investments. Empirical evidence is still difficult to obtain across all markets and risk parameters, but the recent history of debt reschedulings and moratoria strongly suggest that critical-need merchandise trade facilities will be accorded preferential treatment in terms of repayment and renewal.
It would appear, therefore, that Trade offers an increasingly attractive profile relative to other forms of risk as world markets continue to experience turmoil and uncertainty. In order to support this differentiation in the eyes of investors, major industry participants should focus their efforts on ensuring the efficient distribution of risk and the provision of client technology capabilities, which can assist with the monitoring and reporting of changes in market conditions.
Opportunities to expand the universe of potential buyers of Trade risk should be actively pursued, as this type of paper should be of interest to asset managers in insurance companies, investment funds, pension schemes and other non-traditional placement sources. Of equal importance is the current and future risk profiling of Trade activity, and the leading players in this business will need to be actively engaged with regulatory bodies, credit rating agencies, market analysts and others to explain Trade's advantages and applications.
2008 and subsequent years should be an exciting time to be involved in the Trade business as it expands into new market spaces and continues to reinvent itself. A clear appreciation of the risks and benefits available in the market should yield some tremendous opportunities for those who view Trade as a critical component of global transactional and investment activity.
About the Author: Bruce Proctor is managing director, JPMorgan Global Trade Services. www.jpmorgan.com/trade