Critics also blamed Mr Xiao, 57, for failing to identify the bubble, which was driven largely by retail investors, as it was inflating. Margin finance — in which investors borrow money to buy shares — exploded in the early months of last year. Official margin loans hit Rmb2.3tn in late June, up from about Rmb400bn a year earlier. Lightly regulated, grey-market margin lending may have added Rmb1tn more.
Source: China dismisses top market regulator
Over the past couple of months commodity trading has surged in China as retail investors, high net worth individuals and yield hungry wealth mangers have piled into the sector, using it as a quick and easy way to place leveraged bets on the outlook for the domestic economy.
The surge in speculation has rattled global commodity markets, causing a sharp run-up in the price of steel and iron ore futures that has astonished western investors and analysts, accustomed to following the fundamentals of supply and demand. […]
At the peak of last month’s Chinese commodities fever, the number of steel reinforcement bar contracts traded in Shanghai exceeded volumes for the world’s two most important crude oil benchmarks, Brent and West Texas Intermediate.
“Retail traders are increasingly dominant in trading,” says Morgan Stanley, the US investment bank, which estimates 18 of the top 25 most actively traded commodity futures contracts are now on Chinese exchanges.
The individuals trading in Chinese futures are not generally the “Shanghai grannies” who crowd into equity brokerages. Powerful individual traders and funds with one foot in physical markets and one in the futures markets set the direction and the smaller fish surf on their much larger positions. Those smaller fish are often young men hoping to make their fortune in an unstable but exciting market, where political connections aren’t necessary. […]
Online trading is also possible on a platform launched by China Futures Market Monitoring Centre last year. Morgan Stanley estimates 160,000 new accounts were set up online between July 2015 and February 2016. Individual investors tend to be most active when markets are rising, and have dominated past rallies in Chinese futures. […]
Large institutional investors who drove the rally early on are now short. […]
Roller-coaster price swings and participation of individual traders mean that Chinese futures and equities markets are often called a ‘casino’. […]
The trigger for the recent run up in prices, say analysts, can be traced back to a credit surge engineered by Chinese policymakers earlier this year to help support the economy. This led to a pick-up in the construction and property markets, and in investor appetite for betting on steel and iron ore amid a revival in demand.
But it was only when retail investors really started to pile in that futures trading volumes went into overdrive, alarming regulators.
Source: Chinese retail investors throw global commodities into a tailspin
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