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Asian Petroleum Review : Jan-March 2011
29 The commodities and energy sector is on the cusp of a multi-year boom in investment flows, and hedging activity is set to surge, but mar- gins will remain thin as competition escalates, a sen- ior Societe Generale executive said. "As overall demand picks up, we're seeing a lot more requests for hedging tools," Angel Archuleta, the head of energy trading for the French bank's com- modities derivatives group in Asia, told Reuters in an interview. "We expect demand to continue picking up, not just in energy, but also in bulks, metals, ags. We see the need for commodity risk mitigation across the board, so that's encouraging. " The risk appetite of clients in Asia has also grown. Recent fund flows into the commodities sector pushed key indicators such as the Reuters-Jefferies CRB In- dex, the S&P Goldman Sachs Commodities Index, and the Dow Jones UBS Commodity Index to their highest levels since October 2008 early in November. Both the Dow Jones UBS index and the Reuters- Jefferies CRB Index hit one-month peaks of 156.72 and 317.29 respectively this month, while the S&P Goldman Sachs Commodities Index touched an all- time high of 619.59 in intraday trade. "Looking at the flow picture six months ago, clients were concerned about margins upfront, and making sure the business was able to run, with the tenure of trades just one or two quarters ahead," Archuleta said. "Now, we're seeing more aggressive programs from con- sumers to refiners, where the scope and tenure has in- creased. For example, calendar trades are being looked at, 18-month forwards are being looked at." On a broader scale, growth prospects are bright, with the global commodities and energy sector in the nascent stages of a boom phase, and a new paradigm of com- modity investing and consumption coming into play, Archuleta said. "Commodities will no longer be part of the finance class where it comprises just 2 to 5 percent of your as- set allocation model. It's now a legitimate investment class with the boom in ETFs and different mutual and hedge funds that are more resource-based, " he said, re- ferring to Exchange Traded Funds. "As an investment tool, as a hedge, we're going to see unprecedented levels of activity. It's going to push price levels, interest, demand, everything, forward. Whether this is going to create a bubble, well, we're go- ing to need prudent risk management, " he added. Thomson Reuters Asia Petroleum Review SocGen sees Asia commods hedging growth,margin squeeze By Jennifer Tan SINGAPORE