Can you imagine a chicken egg being a better investment than shares in a company?

The humble hen is providing the latest speculative investment craze in China.

With the credit taps turned on to help grow a transitioning Chinese economy, money is finding its way into commodity markets, creating price distortions.

In April, steel and Iron ore prices rallied 50% from the start of the year, as mum and dad investors piled in to the futures market. Steel and iron ore futures became the most traded commodity contracts in the world, beating commodity staples such as West Texas Intermediate and Brent crude. The increase in turnover of contracts was so stark, that it doubled the previous months. Yet ironically, the miners of iron ore such as BHP, RIO and Fortescue, weren’t seeing the same activity in physical markets.

With a bubble imminent, exchange officials panicked, and brought in measures to limit the speculative trade. These included increasing the amount an investor must deposit (margin requirements), higher fees, and reduced trading hours.

The tighter conditions were welcomed by the iron ore miners, and in late April the price began to fall – better reflecting the slowdown in parts of the Chinese economy, and it’s L-shaped recovery.

Fried, or easy-over?

Egg futures also had a cracking start to the year, rallying (see Bloomberg chart) some 27% at its peak. Price movements were so extreme and evidently speculative, as egg prices fell 24% in the US. Egg trade was also making an omelette of the Chinese stock market, with shares trading 15% weaker over the comparable period. However, the crackdown by exchange officials brought the egg futures trading back to roost, with prices falling 13% since their April highs.

Excusing all the bad puns in this article, there is a very serious issue here for the Chinese Government. They have to balance an economy in transition and travelling much slower than its hefty growth rates of the last decade, along with the increased wealth of its people, and their related investment.

Perhaps Australia’s next great export to China can be a course in Investing 101?