Instreet managing director George Lucas said retail investors, high-net-worth individuals, wealth managers and Chinese investors have all piled into commodities futures over the past couple of months.
“Adding fuel to the fire was the decision by Chinese regulators to clamp down on equity markets,” said Mr Lucas.
“In response, Chinese investors have diverted their money into commodity futures – not property assets as many may have expected.”
Mr Lucas said all of this has significant consequences for Australia, given that the Australian currency, economy and stock market are influenced by the price of iron ore.
“Having the price of iron linked to Chinese retail investors is not ideal to say the least,” he said.
“This madness has surprised western investors and rattled global commodity markets, causing a sharp run-up in the price of steel and iron ore futures.”
At the start of this week, Mr Lucas said, the number of steep reinforcement bar contracts traded in Shanghai exceeded the volume produced by China annually.
“In an attempt to cool the market and reduce the high volumes, the Chinese regulator increased transactions fees and margin requirements on Chinese commodity futures,” he said.
“This led to the large fall in iron ore prices we experienced last week.”