CHINA’S hedge funds have been big short sellers of locally traded commodities, including iron ore, steel and rubber, after redeploying cash from tumbling equity markets where authorities have slapped curbs on trading, fund managers and traders said.

    The Chinese equity market rout, which has persisted despite a raft of unprecedented policy measures, appears to be the chief factor driving the sell-off in commodities.

    There had been forced liquidation on China’s commodities markets due to margin calls tied to stock market exposure, as well as some short sellers taking advantage a flight of international investors from local markets, they said.

    “Chinese funds recently have increased investment in commodities,” said a trader with a large Chinese hedge fund.

    “There is no opportunity in the stock market in the short term,” she added, noting that bets could be short-term positions only due to the uncertain market conditions.

    Secretive Chinese funds have had a growing influence in markets in recent years and were said by traders to be behind a number of big drops in copper in recent years.

    Dalian iron ore futures yesterday suffered the biggest slump and plunged nearly 8 percent to an all-time low of 349 yuan per ton (US$56).

    Shanghai Futures Exchange steel, rubber, copper and nickel contracts were also pummeled as funds targeted markets with heavy exposure to the Chinese economy and active futures markets during the Asian trading day.

    Open positions in Shanghai copper rose 16 percent in three days to 590,870 lots as of Tuesday. (SD-Agencies)