Commodities exchange on the way

HA NOI — Derivative exchange, considered a new investment channel for local business in the gloomy economy, will take a leap in the domestic commodity market next year.

Nguyen Duy Phuong, director of the Viet Nam Commodities Exchange (VNX), made the above statement at a conference held in the capital on Tuesday.

At the event, entitled "Viet Nam's Economy 2011 and Prospects for 2012 - Opportunities for Commodities Exchange", Phuong estimated that the number of VNX accounts would surge from the current 1,385, worth VND7 trillion (US$333.3 million), to roughly 5,500 accounts worth VND18.6 trillion ($885.7 million) next year.

He said that derivative transactions would help customers ensure high product quality and cut transportation and travel costs.

In addition, it would help domestic producers and manufacturers strengthen their positions in negotiating with foreign partners.

Launched earlier this year, the domestic commodity exchange has remained unpopular locally. Currently, 41.3 per cent of transactions via the VNX include rubber trading while 58.6 per cent focus on coffee.

Domestic businesses at present only use the derivative exchange as a brokerage with foreign customers while it should in fact also serve as a chain providing commodities and logistics.

Phuong expected the market to improve significantly next year when the VNX joins hands with banks, goods evaluation and logistics companies and completed a warehouse system to meet investor exchange and storage demands.

The VNX has also signed a co-operation agreement with the Viet Nam Chamber of Commerce and Industry's Enterprise Development Institute to implement programmes focused on attracting additional investors.

Commodities not stocks

Investors should consider choosing the commodity market as an investment channel instead of real estate or the stock market, a finance professor said yesterday at an international conference held in HCM City.

Steve Ohana, who teaches at ESCP Europe Business School, said for the short to medium-term, the current environment was not favourable for investing in commodities.

Organised by the French-Vietnamese Centre for Management Education (CFVG), the conference attracted the interest of managers and senior officers from the banking and financial industry in HCM City.

Ohana said that industrial metals and soft commodities (grains in particular) offered dull investment prospects due to the combination of a bad-growth outlook in Europe and China, and the rally of the US dollar against most other currencies.

However, it could improve next year.

"As for gold, I would not advise investing in the short term in the current deflationary context," he said. "However, in the long-term, this is a good asset to hold against the threat of currency debasement that is looming in most industrialised countries."

Commodity markets are not an attractive investment channel because regulations to make it more transparent still do not exist. Thus, investors don't trust the market.

Ohana advised investors to be wary of large rises in the commodity market caused by minor trends or liquidity conditions on the market.

As commodities have become sensitive to liquidity conditions, signs of liquidity degradation should be actively monitored as an indicator of downside risk.

At the conference, a representative of the Viet Nam Commodity Exchange, the first commodity exchange to be licensed in the country by the Ministry of Industry and Trade, mentioned several factors that affect commodity prices in Viet Nam.

The price of commodities this year has been influenced by the turbulent financial market, natural disasters, political tensions and local government policies around the world.

These include the sovereign debt crisis in the Eurozone, the US economy (budget deficit and unemployment), political unrest in the Middle East, and natural disasters in Japan and Thailand.

World markets are in turmoil amid renewed concerns that the fragile US economy and a debt-ridden Eurozone could plunge into a new recession.

In 2012, the outlook for the global economy could be negative, and commodity prices could be affected, he said. — VNS