By Arindam Saha –
MUMBAI: Commodity market guru, Jim Rogers has just one piece of advice for Indian policy makers — allow foreign investors to bet in local commodity futures exchanges to help them grow faster. Mr Rogers who was in town for a short visit also has an easy recipe for success for commodity investors, which is to keep buying and stay bullish.
Mr Rogers told ET that foreign investors could help infuse more liquidity in futures trading and thus ensure a better price discovery. Significantly, Mr Rogers himself, was willing to invest in local exchanges.
However, the biggest risk for the local commodity derivatives market, according to the guru was “the Indian government,” referring to the fact that some part of the local commodities spot market is still controlled and foreign investors are not allowed to participate in trading.
Acknowledging the fact that the three-year old Indian national commodity exchanges have grown in no time, he said, India could actually become a price setter in many commodities.
A case in point was Indian spices, which are not traded elsewhere in the world but popular in many countries. In his reckoning, tea and tobacco could be prospective commodities for futures trading.
Among the instruments for paper trading in commodities, his favourite is commodity futures contracts. Other popular instruments like options, swap and ETF seem to have taken a back seat, he feels, “Futures are a much cleaner way to trade in commodities.”
A commodity futures contract is an agreement to purchase or sell a commodity for delivery in the future at a price that is determined at the time of initiation of the contract. Futures are also used to shift a price risk that may be satisfied by physical delivery or cash settlement.
For investing in commodities, apart from traditional favourites like gold and crude oil — Mr Rogers suggests that investors could look at commodities like coffee, cotton and palladium. All such commodities are currently trading much below their lifetime peaks.
And he expects them to peak any moment. For example, current prices of coffee and cotton are around 60% below their lifetime peak while, Palladium is trading around 70% below its lifetime peak of $980 per ounce.
He is equally bullish on sugar — one of the highly traded commodities in the global bourses. NYBOT being one of the most liquid exchange.
Though sugar topped a multi year peak last month, he said that the current soft commodity price is about 80% below its all-time high. Sugar price may soar as their is a huge demand for ethanol — a bi-product originating from sugar cane.
For crude oil, he said that the current price outlook looks very promising. “Sooner or later the black gold will hit the $100 a barrel mark.
At that level oil exploration activities will also pick as high end price will make it economically viable” he forecasts. “Even Buckingham Palace could be explored for oil,” he quipped.
“Crude oil price could come down if Shell energy or other groups are successful in exploring oil from the Canadian tar sand belt,” he said. Shell is reportedly spending around $4bn in the exploration work.
While comparing commodities with stock — the other popular asset class, he claimed that over the years commodities have historically ensured a higher return of around 300% than stocks and the two usually move in opposite directions.
Rogers, a staunch advocate of free markets is one of those who have backed LN Mittal in his hostile bid for Arcelor. “The controversy surrounding the bid was outrageous and uncalled for “he said.
Source: India Times