PREVIOUSLY linked to short trades causing dramatic falls in metals, Chinese funds have cut their overall exposure to industrial commodities, seeing little prospect of momentum either way to pounce on, industry sources say.

    Zhejiang Dunhe Investment Co., which according to traders manages more than 10 billion yuan (US$1.61 billion), had virtually suspended trading in metals since early July, said a source familiar with the fund.

    A senior official at the fund said trading commodities was “difficult now,” but declined further comment.

    “Investors have lost confidence in the stock market, but commodities are even more difficult to get high returns,” said Li Wenjing, an analyst with Industrial Futures in Shanghai.

    “With prices already too low, investors taking more short positions may lose money, while prices are not expected to rebound for longs.”

    A 60 percent rally in Chinese stocks beginning last year tempted funds to increase their bets on equities, but some have been burned by a sharp drop from the June peak.

    Another fund, Shanghai Chaos Investment Co., has backed off trading in metals like copper as well as petrochemical products in the past three weeks, though it recently invested in Dalian iron ore and Shanghai rebar futures, the source said.

    Chinese funds have increased their clout in global markets in recent years and were said by traders to be behind big falls in copper, one in March last year when the metal fell more than 8 percent in three days and again in January this year when copper slid almost 8 percent in two days. (SD-Agencies)