SHANGHAI: Investors should sell bonds and buy commodities like silver and rice as a “refuge” as the world economy may continue having problems, Jim Rogers, chairman of Rogers Holdings said.
“Bonds are not a good place to invest in. You should own commodities because that’s your only refuge,” said Mr Rogers, who predicted the start of the global commodities rally in 1999. Gold has gained 8.3% this year, leading advances in precious metals, as investors seek haven assets to protect their wealth amid concerns that global economic recovery will falter. Still, commodities overall capped their worst quarter in more than a year on investors’ concern that slower growth from China to the US will sap demand. The best place to be is in commodities and other natural resources, including precious metals like silver, platinum and palladium as supply shortages are already developing, said Mr Rogers, who co-founded the Quantum Hedge Fund in 1970. Gold prices will rise to more than $2,000 per ounce, said Mr Rogers, without giving a time-frame. Bullion for immediate delivery declined 0.4% at $1,187.85 an ounce. It reached a record $1,265.30 on June 21. While gold has been trading at an all-time high, silver remains 60 to 70% below its peak and is a better investment, he said. Silver reached an all-time high of $50.35 in New York in 1980. Silver for immediate delivery fell 1% to $17.6413 an ounce. Platinum dropped 0.6% to $1,507.68 and palladium declined 1.2% to $433.35. Still, agricultural commodities are better than metals as prices are “very depressed,” he said, pointing to sugar which is 75% below its all-time high in 1974. Raw sugar for October delivery slid 1.2% to 16.49 cents a pound on ICE Futures US in New York. It reached a record of 66 cents in November 1974. “Not many things are 75% cheaper that 36 years ago, but that’s true of sugar,” Mr Rogers said. “Agriculture commodities are desperately cheap compared to 20, 30, 40 years ago.” Rice futures on June 30 touched $9.55, the lowest price since October, 2006, on rising production and declining demand. The contract for September delivery gained 0.7% to $9.935 per 100 pounds on the Chicago board of trade in Shanghai. |
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Derivatives trade to get cheaper as Sebi halves exposure margins
MUMBAI: Trading in stock futures and options (F&O) contracts is set to get cheaper from July 15. The Securities and Exchange Board of India (Sebi) on Friday announced a cut in exposure margins in stock derivatives to 5% from 10% in a move to lift the sagging fortunes of these contracts.
“The step is aimed at bringing back retail traders, who are more impacted by higher costs of contracts. With the market trading range-bound in the past several weeks, the current exposure margins made it difficult to make money,” said Amit Gupta, derivatives strategist at retail broking firm ICICIdirect.
F&O margins comprise initial or SPAN and exposure margins. Initial margins are calculated by a software called SPAN, which is revised 6 times a day.
“As there is nothing that can be done to SPAN margins, the best way to encourage retail participation is by reducing exposure margins. With smaller lot sizes and more mid-cap stocks in the F&O list, there is a possibility that retail traders may come back to stock futures and options,” Mr Gupta said.
Sebi last revised exposure margins in October 2008 during the financial market crisis, following the Lehman Brothers collapse. Then, the market regulator increased exposure margins for stock derivatives to 10% from 5% to discourage retail traders from betting on stocks in volatile markets. Since then, retail traders mostly used the less-riskier index options to bet on the market.
“The step will boost intra-day volumes in stock derivatives. Traders have been loaded with costs such as SPAN margins and even mark-to-market margins in case of losses. So, a cut in exposure margins would be of great relief to them,” said Alex Mathews, head-research, Geojit BNP Paribas Financial Services.
Total number of contracts traded in stock futures and options in 2009-10 (April 2009-March 2010) were about 16 crore compared with 23.5 crore in 2008-09. In the current financial year starting April 1, 2010 to date, total number of contracts in stock futures and options was over 4.5 crore.
F&O traders say alternating bouts of volatility and range-bound movement in share prices for the past many months has led to most retail investors cutting down exposure to stock and index futures. This has set off a vicious cycle, where low liquidity further discouraged traders from betting on futures. When liquidity is low and prices move in a narrow range, traders are unable to exit their positions quickly enough and often end up suffering a loss.
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Analysts' corner
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Trading desk
Reliance Capital
Current Price: Rs 760
Target Price: Rs 785
The stock appears to have bottomed out at least temporarily and should see an uptrend over the next two or three sessions. The initial targets would be in the range of 785-790, though the closing price today may not be able to sustain above 785. Keep a stop at 752 and go long. Increase the position between 765 and 768. Start booking profits above the 785-mark.
Sesa Goa
Current Price: Rs 347
Target Price: Rs 330
The stock had an aborted uptrend on Tuesday, hitting resistance at 355. It has a downside support till around the 340-mark. If 340 is broken, the stock could fall till 330 — but this will probably take more than one session. Keep a stop at 350 and go short with an initial target of 340. If you can hold overnight, book partial profits at 340 and hold the residual position with a new target of 330 and a reset stop loss of 345.
DLF
Current Price: Rs 279
Target Price: Rs 265
The stock has broken a key resistance at the 280-281 mark. It has a potential target in the 260 zone, but has supports at 265 and at 272. It is likely to break the first support at 272 and test the 265 support. Keep a stop at 285 and go short. Increase the position between 270 and 272 and reset the stop loss to 275. Start booking profits between 265 and 267.
The target price and projected movements given above are in terms of the next one trading session unless otherwise stated
Src: HDFCSEC, ET and DP blog and Smartinvestor