China’s Investors Shifting to Global Commodities, Marex Says

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  • Wealth creation is now demanding market access: Van den Born
  • LME’s slump in volume may continue under higher fees, he said

China’s cash-rich investors are increasingly looking to trade on offshore commodities markets after a regulatory crackdown and amid fears over the depreciation of the yuan, according to Marex Spectron Group.

“We’re definitely seeing a tumultuous rise in retail-type or investor-type trading,” Simon van den Born, the broker’s global head of metals, said Wednesday at a press briefing in Hong Kong. Revenues from China have doubled this year, offsetting a slump of about 30 percent in traditional business from industrial and corporate clients, he said.

The surge of trading from China comes after a clampdown last year on equity market speculation and the suppression of an unprecedented frenzy on commodities exchanges this year by hiking fees, raising margins and cutting trading hours. Chinese investors are also seeking overseas outlets for capital as fears of a weaker yuan encourage them to switch into dollar-denominated assets to protect wealth, Marex’s chief operating officer for metals, Kevin Nutt said at the joint briefing.

Enormous Wealth

“The enormous amount of wealth creation in China in the past 10 years is now demanding access to markets, access to investment tools, and access to return,” Van den Born said. “It’s that money that’s looking for opportunities.”

China’s growing presence in world commodities markets comes as banks, brokerages and exchanges look to capitalize on the flow of funds from Asia’s biggest economy.

Four Chinese entities now own or partly own members of the London Metal Exchange, which was bought by Hong Kong Exchanges & Clearing Ltd. in a $2.2 billion deal in 2012. Shanghai Chaos Investment, a Chinese hedge fund controlled by commodities trader Ge Weidong, opened a Hong Kong brokerage unit partly to serve as an offshore hub for trading overseas, people familiar with the matter said last month.

LME Slump

To be sure, Chinese interest in commodities isn’t leading to more trading on the LME, the world’s biggest metals bourse. Volumes fell 10 percent in the first four months of 2016.

Charles Li, chief executive officer of HKEX, defended his decision to raise LME trading fees in three speeches to industry executives gathered for a conference in Hong Kong this week. Fees are no higher than comparative exchanges, said LME CEO Garry Jones.

Marex is among market participants that have warned a new fee structure introduced last year is hitting volumes and driving away industrial users of the 139-year-old exchange. The slide could continue, Van den Born said.

“There are always going to be outside factors that positively or negatively affect trade, but the general trend from clients is ‘I’m using this exchange less, I want to circumvent it,’ and people are looking for ways to be more cost-efficient,” he said. “People are realizing what the pricing structure has done to their business, and it takes time and efforts for people to work out how to change.”