Veteran investor Jim Rogers said that authorities in China are right to tackle the frenzy of speculative investing that has broken out in the nation’s commodity futures markets, adding that a failure to act would have stored up problems.
“China is doing their best to cool it off and calm it down,” Rogers, Singapore-based chairman of Rogers Holdings, said in a telephone interview. “That’s good, because over-speculation in anything leads to problems, especially if people don’t know what they’re doing.”
Investors in China have piled into commodity futures this year following signs of a stabilization in Asia’s top economy, lifting volumes to records and spurring prices.
The upsurge prompted exchanges in Dalian, Shanghai and Zhengzhou to tighten rules, boost fees and in some cases cut trading hours to quell the fervor.
London Metal Exchange chief executive officer Garry Jones said it is possible that some Chinese did not even know what they were buying and selling, a sentiment that is echoed by Rogers.
“When people start investing in a lot of things and they don’t know what they’re doing, they’re basically going to the racetracks or to the casino,” Rogers said. “Whatever the authorities did, they calmed it down. That’s terrific.”
The country’s top financial regulator, the China Securities and Regulatory Commission, pledged last week to prevent the excesses.
Bourses must strengthen market oversight and curb speculative trading, according to the commission.
There are signs the push is working as raw materials decline and volumes tumble. Iron ore prices on the Dalian Commodity Exchange that peaked at 502 yuan (US$77.17) per tonne on April 25 have declined to 417 yuan. Steel reinforcement-bar contracts on the Shanghai Futures Exchange nosedived from a peak of 2,787 yuan per tonne on April 21 to 2,333 yuan.
Iron ore giant Fortescue Metals Group Ltd on Wednesday praised Chinese authorities, saying the moves were putting a brake on speculation that had become unhealthy.
Fortescue chief executive officer Nev Power said that the higher transaction costs would cool the enthusiasm.
Rio Tinto Group chief executive officer Sam Walsh described trade in Dalian as the “wildcard in relation to iron ore at the moment.”
The Chinese government is working to put in greater controls, because the volumes are excessive, he said in Brisbane yesterday as the company held an annual meeting.
“It seems the Chinese investors discovered that commodities is a place to invest and started doing so,” Rogers said. “You’ve seen these sort of outbreaks many times from many countries.”
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