For nearly a decade, institutional investors have been adding a commodity markets exposure to their portfolios as a way to diversify their returns. This trend is now being blamed for the surge in energy prices to record-breaking prices, on the theory that the flow of investment into energy futures has been so large that it has distorted the normal functioning of the market. In the following article, three members of the commodity research team at Barclays Capital shed some light on the commodity investment trend with a carefully gauged estimate of the size of the flows. They also describe the increasingly wide range of investments used to capture commodity market exposure, and refute some of the more common fallacies and misperceptions in the political debate on this issue.

Carbon trading in the U.S. is a lot closer than many realize. Both presidential candidates agree that an emission trading system, also known as cap-and-trade, would be the best way to reduce America’s greenhouse gas emissions. So no matter who wins the election this fall, the next administration can be expected to propose the creation of a system for trading carbon emission allowances. The resulting U.S. carbon market could be up and running by as early as 2012, and annual turnover could be worth between $40 billion and $150 billion in the first year of the program.

The credit derivatives market, estimated at $58 trillion in notional amount outstanding at the end of 2007, appears to be on the brink of adopting a new structure based on the use of a central counterparty.

The Tokyo Commodity Exchange is the largest energy and precious metals futures exchange in Asia that is open to all investors, including traders from the major financial centers of Europe and North America. Yet its trading volumes are in decline, even though the global boom in commodities has resulted in tremendous growth at other commodity futures exchanges around the world.

Rare wine might seem like the antithesis of a tradable commodity, but in fact futures have played an important role in the wine trade since the 18th century. Now the wine futures concept, long nearly unique to Bordeaux, is catching on elsewhere, driven by the rise of Web-based wine trading and the growing number of investors who buy wine as an investment.