Shanghai Chaos Investment Co. and other Chinese funds are believed to be behind this week’s sharp decline in copper prices, the Financial Times reported, citing commodity traders.
The metal suffered its biggest one-day fall in more than three years on Wednesday amid aggressive selling of futures contracts by Chinese funds on the London Metal Exchange and Shanghai Futures Exchange, the newspaper said.
“If you think American traders are aggressive, these guys are three times as big and as fast and crazy,” a senior trader was quoted as saying. “It’s like they’re on speed.”
The sources did not give an estimate of the profits the Chinese funds made by betting against copper, but said the assault was made amid jitters in the commodity markets because of the oil rout.
The newspaper said the aggressive tactics employed by the Chinese funds can have an almost instant effect on the markets because of the increasing presence of computer-based high-frequency traders that feed off their moves.
Besides, commodity prices are increasingly being influenced by China, the world’s largest consumer of raw materials, the report said.
“It used to be the case that prices were set in Europe and the US and China would follow. Now the trend is moving toward Asia,” said Edward Meir, a futures broker at INTL FCStone.
“These funds have a lot of firepower, there is a lot of money going into them. They have no problem taking big positions,” Meir added.
Shanghai Chaos, established in 2005, is headed by Ge Weidong, who started out as a trader at state-owned food conglomerate Cofco.
Another Chinese fund active in the commodities market is Hangzhou-based Dunhe, run by Ye Qingjun, known as China’s George Soros for building a 10 billion (US$1.6 billion) fortune by betting a 100,000 yuan mortgage on his home in 2003 on a bull market in soya beans, FT said.
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