I am a part of the team which is responsible for management and hedging of commodities exposures. Some say corporates are good only in following advice from banks or brokerages. I do agree corporates do not have market insight of a bank. But here is a problem. It is not bank or broker or a hedge fund that has biggest risk that markets will go against them. These guys always have an option to do nothing and wait for a better trading opportunity where as we don't. We have to continue to purchase commodities, spend currencies for daily business. Such company is always exposed to changes to market price even if it decides not to hedge. In fact my company has probably one of the biggest short commodities portfolio in the world. Managing such risk effectively is a challenge. It is like being between a rock and a hard place. You get your behind kicked all the time be senior management, whether it was a missed opportunity to hedge or hedge that turned to be out of the money. Critics will say if you lost money on your hedge then you probably bought it cheaper on physical market. let's face it, nobody wants to loose money, full-stop.

So I do not have an option to do nothing as I am always in the position (short in this case). I think people like me have higher motivation to earn positive return on their portfolio then other players. In fact my intention is to bring hedging to a performance benchmark of proprietary trading.

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Thursday, September 16, 2010

It is not BRIC, but rather a smal "b", small "r", big "i" and no "c"

There is consensus that BRIC countries offer if not an absolute but definitely relative potential for growth compared to developed economies. As title of this post suggests I think we need to change the name to something like "brI". Let me explain why.

Obviously BRIC stands for Brazil, Russia, India and China. It has been the case that emerging economies weathered financial crisis and the recession reasonably well. But recent month suggest that BRICs no longer lead the pack in the recovery. Forget economic data and focus on something more simple - respective equity indices.

Brazil and Russia did not put any remarkable performance ever since. Focusing simply on charts I have to say these markets are no different to the US and Europe. these markets do not offer diversification as chart patterns are similar to the developed markets. Brazil's Bovespa:


Russia's RTS:

 

Obviously Indian Nifty is the start performer and deservices the big "I" in the name:
And China, despite being in the news more often the others (probably due to the size of the economy) does not deserve to be in the pack whatsoever. Recent failure to go through 2700 level opens the lows as the first target:


Can't argue about the strength of the Chinese economy, but I cannot be positive about their stock index either. So please stop using the word "BRIC"... call it "brI" from now on or don't mention these countries as a group at all!
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