Posted by: American Hard Assets in Diversified Investments 5 hours ago

Oct 31 (Want China Times) —  A clerk shows a precious metal at China Construction Bank’s precious metal exchange in Beijing, May 15, 2013. (File photo/Xinhua)

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An abnormal surge in exports of precious metals and precious metal ornaments in September has caught Chinese supervisory regulators’ attention, prompting them to form a task force to look into any possible arbitrage in Guangdong province, Shanghai’s China Business News reported.

The value of exports of precious metals and precious metal jewelry was pegged at US$ 11 billion in September, a whopping 678% jump over the same period last year and contributed 5 percentage points to the growth of total exports during the month. This has fueled speculation that arbitrage might have occurred and is the reason behind the booming exports, the report said.

Hong Kong emerged as China’s largest market for such commodities in September, registering 35% year-on-year growth, which was higher than the 15% growth in total exports. The rise is in line with the appreciation of the Chinese renminbi over the past few months, according to an institutional research report.

A rising RMB against other currencies could create a huge arbitrage opportunity for investors seeking to cash in on currency exchange gains, said Liu Ligang, chief economist for greater China at the Australia and New Zealand Banking Group.

Therefore, trading activities between Hong Kong and mainland China should be closely monitored, Liu added.

For industry insiders, the model of precious metals trading offers a good arbitrage opportunity given the big gap between commodity prices of imports and exports and the low costs involved in trading. For import and export companies, the main cost of trading such items comes from logistics fees and customs duties, which are small amounts.

However, industry insider Zhang Wensong said he sees no sign of arbitrage in September’s trading. If there was, it may have been carried out during transit trade and processing trade by large enterprises.

Arbitrage trading has been prevalent in China, particularly in its free trade zones and in Guangdong province, which is near Hong Kong and Macau.

Arbitrage is a situation where people take advantage of different buying and selling prices in different markets, to earn small profit. For instance, interest rate arbitrage occurs when investors take advantage of different interest rates around the world.

Wild fluctuations in the RMB could create an arbitrage opportunity for investors seeking to cash in on currency exchange gains.

In addition, a series of policies rolled out by the government during the first half of this year to stimulate foreign trade is likely to boost arbitrage transactions, some industry experts have said.

SOURCE

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