At the 2023 ATB Business Summit, Janek Guminski, Managing Director of Foreign Exchange, and Mark Johnson, Managing Director of Interest Rates, acknowledged that, while volatile markets are expected in every decade, significant upheavals like post-pandemic recovery, geopolitical crisis and US bank failures have led to a particularly bumpy ride for business leaders recently. The duo addressed four key questions about market risks stemming from fluctuating foreign exchange rates and rising interest rates that are top of mind for business owners and leaders:

As a business owner, I’m looking for ways to manage risk effectively. What advice would you give?

“The volatility landscape is changing all the time,” said Guminski. This can make it hard to know where to begin. Both he and Johnson advise quantifying your risks. Guminski recommends you adopt a three-step protocol to assess risks affecting your business:

1. Understand where your risks live.
2. Quantify those risks.
3. Rank those risks. If something’s high on your list of unmanaged risk, address it.

Johnson noted it’s important to define the parameters by which the volatility will affect your business: how far could it move against you, or in your favour, and over what time frame? “That allows you to quantify what that risk looks like for your business in dollars and cents—real hard dollars and cents—and then that helps you develop a strategy for hedging your business.”

When is the right time to seek advice on financial markets and interest rates and how to incorporate risk management strategies into my business planning?

“It’s never too soon,” Johnson commented. “A fledgling business has just as much exposure to these things as a mature one.” However, he noted there comes a tipping point: when you’re spending too much time thinking about the risks and volatility and not enough running your business. He advises business leaders, regardless of what stage your business is at, to control what you can control and rely on experts to help you develop a strategy to mitigate risks.

I’m trying to time the market. What strategies will help me mitigate risk so I can focus on my business?

Both Guminski and Johnson emphatically agree: you should not attempt to time the market.

Instead, you’re best to focus on your core business and work with market experts to help you manage or hedge the things you can’t control, according to Guminski. “Focus on what you’re good at and remove the risk at the one or two things you don’t control.”

Johnson, a trader for 25 years before joining ATB, put it bluntly: “I have no idea how to time the market. Specifically. Anyone who tells you they can do it is lying.” Instead, he advised that you’re better to figure out your strategy and your benchmarks within that. They could be time- or level-based, but they should have nothing to do with market timing. “You can save money in myriad ways within your own business. You’re much better off to do that than you are to stare at a ticker.”

What are the key themes you’ve seen so far this year and what should my takeaways be?

We’re in a new paradigm, said Johnson. Gone is The Great Moderation disinflationary paradigm. The fiscal and monetary policies introduced during the pandemic were “a one-two punch we’ve never seen before,” and volatility is “historically off the charts.” With disinflationary factors gone, neither the economy nor the rate cycle is expected to perform the same way. “So opportunities to lock yourself in, at rates you wouldn’t have considered reasonable five years ago, could be the smartest thing you’ll do in the next 10.”

For Guminski, it’s a reminder that the Canadian dollar is tied to many factors. For the last few years, it’s had a strong correlation with equities. But there are others: the US dollar index, WTI, commodities, interest rates and many more, never mind both big- and small-picture risks. “Managing your exposure within parameters that make sense—that’s highly recommended for me.”

'Twas ever the way

The last couple of years have presented anomalies, with asset classes like equities, bonds and currencies moving at the same time due to black swan events like the pandemic. “There’s a lot of volatility, a lot of stuff that could keep you up at night,” Johnson said. “It’s important to remember that ’twas ever the way.”

That’s actually good news. It means the solutions have always been there too. “Every year we get a little smarter, and every day we figure out ways to mitigate those risks a little better,” he concluded. “Hopefully, that can be something you can take comfort from.”