The Chinese love to gamble! They love to speculate. In 2015 Nickel was trading in Shanghai and within 6 weeks its trading volumes went through the roof and volatility went wild.
“Daily liquidity on SHFE (Shanghai Futures Exchange) is surpassing that of the LME and Comex put together. The highest monthly trading volumes for copper and zinc last year were on the SHFE” – Henry Sanderson, Financial Times, April 2015
Finally, the Chinese Authorities stepped in and slowed the nonsense down, by tightening the rules, increasing fees, margins and shortening trading hours.
In 2015, according to the Futures Industry Association, Chinese futures contracts traded on SHFE were among the top four most traded metals contracts in the world.
It’s said that oil futures traded on the US and UK exchanges already outstrip physical trading 23 times to one!
The Chinese are going to have some fun with this one!
Back in 2014, Ian and I ran a seminar called “Actions for Wealth Planning Day” and in one of the sessions we hypothesised just what events could unfold in this cycle to eventually bring about another GFC type event. On that day we spent some time telling the audience that amongst the possibilities there were two very real possibilities to watch.
- The growth in Crypto Currencies
- Asia gaining access to leveraged financial instruments that they can speculate heavily on
There were a few others, but we will leave it to another time to discuss them.
Each cycle is “The Same, Same but Different”
Whilst the drivers remain in place, they must manifest into a boom bust cycle.
We will need to watch the oil future space and the speculation that is likely to occur with it very closely. Remember China has NEVER seen a full cycle. En masse they have never witnessed first-hand or felt the emotional effects of a massive speculative bull market.
They love to wager and financially are very inventive when given the chance.
Folding Money, as my Grandmother used to call it, was said to have first been used during the Tang Dynasty (A.D. 618-907). This advancement was years ahead of Europe or Japan.
The implications of China trading oil futures are likely to be more far reaching than just the price and distribution of oil. Be aware this is as much the preamble to a currency war between two heavy weight titans. You can hear the announcer now, can’t you…
“IN the blue and white corner, weighing in at $19.42 trillion is the USD
And in the Red corner, weighting in at $11.93 trillion is the Yuan.”