Wednesday, March 30, 2016

Commodity trading in China is big and getting larger

You and I cannot go to China and start buying soybeans or gold or whatever we want. It is very difficult. It could happen but it is very rare and difficult for non-Chinese to trade in Chinese commodity markets. Yet, Dalian, the commodities exchange in Dalian, trades more soybean contracts than Chicago and Chicago invented it! The volume in these markets in China is staggering and they are still closed to the outside world. You cannot imagine how big they are going to be once they become real international markets. They are going to take the business away from Chicago. Chicago, London, and New York, will no longer be the dominant markets in the world. China will take away most of their business. That is definitely going to happen. 

By the way, before WWII, the biggest financial market between New York and London was Shanghai, and it will be again eventually. To your point about Chinese stocks, yes Chinese stocks have been going up again for a number of reasons, one of which is that China, as it becomes more and more open, they realize that you need financial markets if you are going to become a big economic player in the world. You can’t have closed markets and still be a big player in the world. They know that and they are opening. They aren’t opening as fast as I would, I would’ve done it last year, or yesterday, or tomorrow! But for some reason they are doing it too slowly, in my view. But it is happening more and more. 

Can you have stocks and commodities go up at the same time? It is rare, in history that happens. Normally, you have commodities going up in their own bull market and stocks not doing well and vice versa. It can happen, anything can happen in financial markets, you can have bull markets in stocks and commodities. 

One reason you have bull markets in stocks when commodities are down is that the cost of goods and inputs are down when commodities are in bear markets, so companies can be profitable. And vice versa when commodities are in bull markets, it is more difficult for companies to be profitable and that is usually why they do not go together. 

China, given the fact that it is and expanding, growing, and new economy, could be different. Will it be different? I don’t know but I am optimistic about some economies and less optimistic about others at the moment. Longer term I am still optimistic about commodities, certainly in China.

Jim Rogers is a smart investor who co-founded the Quantum Fund with George Soros in 1973. By 1983 the fund gained more than 4000 percent.