The demand for oil and raw materials from the world's fastest growing economies -- China and India -- is providing a counterbalance against the slowdown in the US and in turn will lead to continued surge in commodities' prices and trading volumes globally, a latest report says.
According to global market research firm Datamonitor, the upheaval in equity markets and the continuing credit crisis would ensure the steady stream of investment into commodity markets, as financial players are attracted by the higher returns that are currently available.
"The rapid growth in commodities trading volumes and prices will continue, as fundamental demand in China and India for oil and raw materials is providing a counterbalance against the downturn in the US," the Datamonitor report stated.
The report revealed new entrants are flooding into the market in large numbers, in many cases without physical exposure to the underlying commodities, which is contributing to market volatility by exacerbating any movements in price.
The price movements coupled with the rise in electronic trading is causing risk management strategies to be re-evaluated in light of the breakdown of historical trends, the report added.
"The unprecedented expansion of world trade in all classes of exports is driving demand for resources across the board. As the scale and volumes increase, stages of the supply chain are becoming increasingly commoditised and are becoming marketable commodities in their own right," Datamonitor financial services technology Senior Analyst Damian Shaw-Williams said.
Added to this, the investment into supply capacity is in turn spurring demand further, and is driving maturation in markets that had hitherto lagged behind in terms of market infrastructure, Shaw-Williams added.
Besides, the report titled 'Technology options in commodities trading' looks at how new entrants have changed the market dynamics and the technology responses of types of market participants.
The report emphasised that the risk tools developed within financial services would provide the sophistication and responsiveness required to manage risk effectively.
However, the report noted that commodities present their own unique characteristics that must be observed. As such it would be fundamental for IT vendors looking to capitalise on the opportunity to have a full understanding and appreciation of the underlying physical market and of their potential client's business, it said.
