Observing market trends is more important than ever

In an uncertain economy, businesses face increased trading and credit risk. In this latest Xtra Series post, Roberto Simone, risk development executive at Xenia, outlines why it’s therefore important to remain observant of changes in marketplace behaviour.

In football, a striker’s work is defined by the goals they score in the penalty box. But the platform for that work comes from observing what’s going on outside the penalty box. A good striker sees and responds to events elsewhere on the pitch in order to be alert to goalscoring opportunities.

It’s exactly the same in business. While the goal is the profitable growth of your company, you can’t run a business of any size without observing what is going on in the outside world.

I wrote last month how monitoring and reviewing other companies’ performance provides a sound basis of risk management - and exactly the same applies to observing market trends and behaviours because they are bound to have ramifications for your business.

Fail to plan, plan to fail


The bread and butter of any business operation is how it responds to the outside world. Let’s take mergers and acquisitions (M&As) as an example.

M&As are usually an indication a market is consolidating because there is not enough liquidity or capital. Companies therefore look for opportunities to join forces or sell themselves to another business. So, by keeping up-to-date with M&As or any activity of that nature, you’re going to have the first handle of what’s going on in your industry, allowing your business to plan accordingly.

Observing market trends is also particularly important in the current UK economy, which is the most challenging we have seen in recent times. Inflation is at a 41-year high, while interest rates recently saw their biggest increase in 33 years. All the while, global supply chains continue to be disrupted.

These elements often go hand in hand, so being observant of economic fluctuations is clearly an important factor in how a business performs and conducts itself: including how it manages its credit risk, how it budgets, how it competes, how it grows and how it expands.

A business with a handle on these economic risk factors is likely to be OK, or at the very least it will have enough information to make decisions factoring in difficulties and challenges. Having these difficult conversations, formulating a strategy and putting a plan in place is half the battle.

But as I’ve said before in this series, it’s not just about preparing for the worst-case scenario. Being a keen observer of market trends and behaviours can open a business up to new strategies and opportunities. If GDP growth is low, for example, how little growth has there been in your sector or industry? Is it worth persevering with, or is it time to look overseas into markets which are actually seeing meaningful growth?


Risk mitigation


The principles of business are simple: take advantage of the opportunities but mitigate the risks.

The key to this is to not get complacent and always be observant of market trends. If you’re not observant you run the risk of not seeing that opportunity, or picking up information that might influence the way in which you trade going forward.

So by monitoring the markets you’re trading in, you put yourself in a position where if disruption does come your way, you are able to navigate the choppy waters and emerge in a position of strength.

Xenia’s team has extensive product and sector knowledge, enabling us to help clients tackle their business challenges. To find out more about our services, click here.