DCP Oracle arbitrages commodity prices between China and the West
Sat Jun 26, 2010
Greg Davidson, one of the pioneers of Sino-western commodities price arbitrage, elucidates his unique strategy of working within the regulatory barriers in China to glean uncorrelated returns
global commodities at US physical commodity merchant Gerald
Metals in the late 1990s, it became obvious to Greg Davidson
that the rapidly growing China commodities market presented a
natural arbitrage in terms of price differentials with the
Western markets. This was primarily due to the closed nature
of the China market which resulted in market inefficiencies,
and the several regulatory barriers to arbitrageurs in the
marketplace - after all, China's commodity markets were
closed and the renminbi was a controlled currency. This made
China the only market to offer unparalleled arbitrage
opportunities between the commodity prices there and other
western markets such as London and New York.
"We realised that if we had the right structure in place
that could help us access these various regional markets
under the existing rules, and extract arbitrage opportunities
between commodity prices in these markets, we could generate
true, non-directional alpha," explains Davidson. With...
ISSN: 2151-1845 / CDC10004H
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