Meet to discuss funds role in commodities

The role of hedge funds in commodity futures is expected to crop up at the two-day meeting of global market regulators in Geneva in wake of the global repercussions of the subprime crisis in the US.

The United Nations Conference on Trade and Development-organised conference, beginning Monday, will have emerging markets as the central theme. B C Khatua, chairman of the Forward Market Commission, will present the Indian scenario at the meeting.

According to reports, hedge funds worldwide selling their commodity portfolios to cover up the losses incurred in other assets classes, resulting in volatility in commodities markets globally.

According to a survey of 100 commodity funds by London-based investment advisor, NewFinance Capital, commodity-trading hedge funds returned between 13 per cent and 23 per cent last year. As per the survey, global investment in commodity funds doubled to $24 billion in 2006 and is expected to 25 per cent in 2007.

Hedge funds' exposure to commodity markets has integrated them with other assets class. Already, many emerging markets are facing the impact of hedge funds selling off their commodity exposures, a source in FMC said.

Malaysia's palm oil futures or soy futures in Brazil, for example, are considered benchmarks for price determination in many importing countries, including India.

If hedge funds are reducing their exposure in commodity features in that country, India, another agricultural-dominated economy, will be affected. Likewise, bullion, metals and energy markets in India follow the global trends, the source said.

Furthermore, the regulators are also expected to discuss sharing of information to help improve surveillance and deepening of commodity markets.

Issues such as settlement, warehousing, assaying and contract standardisation also may figure at the meeting. Meanwhile, another two-day meeting, organised by the Switzerland Futures' Association, will be held from September 5 at Montrauf, 50 km away Switzerland.