IO rising as Chinese Hedge Funds Speculate

Last year will go down as the year in which the Chinese retail investor got interested in industrial commodities.
Powerful, cash rich hedge funds have led the charge, sucking in behind them what might best be described as a retail investment crowd.
Many are day traders. Volume to open interest ratios across the SHFE metals contracts are extremely high by the standards of Western commodity markets such as CME or the LME.
But these new arrivals have found a way of expressing a view on the health or otherwise of the Chinese economy, a view that at times last year was impossible to trade in the stock market after some heavy-handed intervention by Beijing.
Last year that view was bearish. This year it is more bullish, thanks to repeated assurances from China’s leadership that the end of the world is not nigh.
The key point, though, is that sentiment is now as important a driver of iron ore and steel prices as old-fashioned supply and demand considerations.
Or as analysts at Citi put it: "Both markets have become increasingly financialised."
"Price movements in both markets are starting to resemble those of copper, oil, and other financialised commodities with significant influence from macroeconomic factors and financial trading flows in addition to supply and demand."
And surely it is no coincidence that this iron ore rally is taking place while just about every other industrial commodity, particularly oil, has been bouncing off multi-year lows.
It is a sign that iron ore has joined the rest of the commodity casino, a place where the madness of the crowd can sometimes overwhelm fundamentals.


http://www.bdlive.co.za/opinion/201...-as-new-breed-of-chinese-player-enters-market