With crude oil hogging the headlines, one tends to forget that metals have been especially pathetic performers in the last three months. Lead is 37% cheaper now than on January 1. Nickel has fallen 30% this year, the worst among all LME-traded metals. Even gold has remained flat on average after shooting up 10% in the beginning of 2008 while silver has barely budged. Platinum fell 5% in July. Palladium fell for a 10th session on Friday. Natural gas has fallen more than twice the distance that oil has. The plunge from $13.50 to $9 marks a 33% reversal. Wheat is 7% cheaper than 2007, after shedding 8% since March. With coffee, sugar, cotton, palladium, aluminum, platinum and copper all clocking single-digit price increases over the first quarter of 2008, the big question is has the commodity bubble deflated? And most important, who do you blame for your pain? The answer lies mired in a confusing slush of demand-supply fundamentals, market sentiment and threats from regulators.   more »

The Commodity Futures Trading Commission said on Tuesday that a government interagency task force has found that the huge jump in oil prices is due to "supply and demand factors" and that speculators are not to blame for high fuel costs. In its interim report, the task force said "preliminary analysis to date does not support the proposition that speculative activity has systematically driven changes in oil prices." The world economy has expanded at its fastest pace in decades, especially in developing countries like China and India, which has led to substantial increases in oil demand, according to the task force.The task force's findings counter many Democratic lawmakers and some energy experts, who argue that the billions of dollars invested in energy markets by hedge funds, pension funds and other speculators have pushed up oil prices.   more »

A downdraft in the Indian stock market is hammering returns for a hedge fund operated by Boston-based Venus Capital Management, reflecting the challenges of investing in volatile emerging markets. The Venus Special Situations Fund, a $100 million long-short hedge fund focused only on India, is down 22.25 percent in the first half, according to a July 15 investor note obtained by Reuters. The performance of the fund comes amid a sharp fall this year in Indian stocks, with the S&P CNX Nifty index of 50 stocks down nearly 40 percent in dollar terms through June. Vic Mehrotra, CEO and founder of Venus Capital, said he is positioning the portfolio for more market declines this year in India, where investors are worried about higher oil prices, inflation and political turmoil.   more »

There is little evidence to support suspicions that speculators are the culprits behind rising world food prices, a new report argues. Rather, the fundamental causes are increasing demand in developing countries for protein-based diets, stagnating agricultural productivity, demand from bio-fuels producers and government controls that limit output and trading, the Conference Board of Canada report concludes. For example, it noted that some governments have reacted to food shortages by putting limits on exports to build up their inventories, or in other words by hoarding food, citing as examples India, Russia and Argentina.Instead, it urges governments and the global agricultural industry to look at ways to restructure markets to address those causes.However, the spread of securitization of food commodities can be seen as an effect, rather than a cause, of the rise in world food prices, she said, adding that it's only when prices for underlying commodities are volatile does it become worthwhile for speculators and investors to seek profit in betting on price changes.Producers are protected from falling prices by purchasing futures, it said.   more »

The futures markets were restarted in India less than five years ago with much fanfare and as a much-needed price discovery mechanism, especially for agricultural commodities. It was also envisaged to be a platform for hedging, i.e. price risk management for producers (read farmers), consumers, processors and traders. In many ways, it was a godsend for farmers in particular because agri-commodities see wide price fluctuations exposing the farmer to unnecessary price risks. The logical response of any government would be to ensure that farmers have a fair and transparent pricing mechanism available for their products. Even the Abhijeet Sen committee report, in its second point of reference, was clearly asked to find ways to increase the participation of farmer in futures trading. Instead, the government has gone ahead and banned futures trading in eight of the most economically important agricommodities and even as it is itself hedging wheat on the Chicago Board of Trade. At the very least, the dichotomy between banning wheat futures here and then going and hedging in the US market it intriguing. What’s sauce for the goose must be sauce for the gander.   more »

Billionaire global investor George Soros has turned contrarian on the Indian stock market, which has seen stocks being beaten down over the past few weeks. His hedge fund Quantum, which was reported to have posted earnings of over 30% last year, went on a buying-spree at a time, when most funds were dumping stocks in a sliding market. On July 4, Quantum Fund bought a 3.8% equity in Jain Irrigation Systems, and close to 1% of the holding of Jai Corp for a value consideration of Rs 167 crore. Since February, the fund has made investments valued at close to Rs 600 crore, or $ 140 million, in various companies, including Indiabulls Financial Services, Indiabulls Real Estate and Kalindee Rail Nirman. “Hedge funds normally are active, when there is some momentum in the market. Quantum may be trying to do some value-buying, but one has to see how long the fund stays invested, given the prevailing uncertain market conditions,” said a stock broker. Since hedge funds mostly operate as sub-accounts of foreign institutional investors (FIIs), their activity is also reflected in the flows of foreign portfolio investors on Indian bourses. These investors have pulled out funds aggregating Rs 30,000 crore, or $7 billion, of Indian equities while the Sensex crashed 7400 points, or 35%, from its peak of 20873 on January 8.   more »

Indian stock markets have been witnessing a bloodbath of late, and India-focused hedge funds, which earlier were pushing up the market to unprecedented heights, are now looking to benefit from the slide by going short on India, reports say. Many are doing so by borrowing shares from foreign institutional investors and then dumping those shares in the market. So far in 2008, foreign investors have sold a net USD6.5bn worth of shares, and a sizeable portion of those sales are believed to have been made by hedge funds, according to the Economic Times. But experts are unsure whether the recent spate of sales by hedge funds stems from redemption pressure or market strategy. With credit concerns governing investment decisions, many hedge funds now have a lower risk tolerance that is driving sentiment across the globe.   more »

A storm of speculation is driving global coffee prices to sky high. The green bean, that suffered a severe market set-back couple of years ago, is now on a bull run. Fuelled by unrealistic speculations of aggressive hedge funds and mutual funds on futures terminals in London (robusta) and New York (arabica), the prices of commodity have risen sharply from 100 cents pound barely six months ago to 150 cents now."This has exposed commodity to lot of criticism as price hike was not triggered by legitimate price discovery mechanism called demand and supply. There's plenty of stock in the market, also a bumper crop from Brazil is hitting the market anytime this month," said a market observer. Speculatory positions worth $12 trillion are currently held by big five wall street investors on New York Mercantile Exchange (Nymex), in the petroleum sector. A similar scenario is happening in the agriculture commodities markets as well. The bulk stocks are held by limited number of players and they are dictating the market.   more »

With stock prices in a free fall, India-obsessed hedge funds that were pushing up the market to dizzying levels are now looking to benefit from the slide by going short on India. Many of them are said to be doing so by borrowing shares from foreign institutional investors (FIIs) allowed to issue participatory notes, and then dumping those shares in the market. So far in 2008, FIIs have net sold $6.5 billion worth of shares, and a sizeable portion of those sales are believed to have been punched in by hedge funds. Market observers are not sure if the recent bout of sales by hedge funds is a result of redemption pressure or arising from a certain market strategy. “The five to 10-year picture still looks good. It is the next 6-12 months which is a question mark,” said Parth Gandhi, MD of Vision Global Investments, a hedge fund. He is of the view that for a long-only fund, the equities market at these levels provide attractive bargains. “The trick is to identify one’s risk profile and thereafter look at individual stock positions one has,” he added.   more »

China is depressing the carbon credit business by only proposing projects under the clean development mechanism (CDM) and not implementing them in a hurry, and trading the credits in the futures market. As a result, India, despite having the world’s highest number of projects registered under the CDM, is getting less for its carbon credits. While India has 333 of the world’s total of 1108 CDM projects, China has 234. Sudipta Das, partner for Risk Advisory Services at Ernst & Young, said many Chinese companies are indulging in carbon futures and selling CER at a much lower price without even registering a project with the designated authority. This is happening because of a loophole in the norms for transacting carbon credits. While the spot market prices for a CER or certified emission reduction is at above euro 20, the future prices are quoted at around euro 10-12. Future trading in carbon at present is more sensible as it is being considered as an asset class, observers said. Observers feel that with the emergence of carbon as an asset class for hedge funds, clean-tech venture capital and private equity investors, segmenting carbon bonds into primary and secondary CERs has become important, as it would give rise to a broker class. According to European market projections, by 2012, CER prices are expected to go up to euro 22.96 from around euro 20.88 at present.   more »