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Is it time to go back to basics and buy commodities?

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World stock markets have been investment dogs since the credit crunch began in mid-2007. The response of many financial experts to this has been 'don't worry, buy pigs' (or chickens, wheat, coffee, orange juice, soya beans or oil).

They are not recommending stocking up on rations. Rather, the advice is that investors who can no longer look at their share portfolios without a stiff drink beforehand should sell out, replacing stocks with sheaves of wheat or iron bars, at least theoretically, by purchasing commodity funds. Governments worldwide are pumping cash into sickly economies at an astounding rate, with China spending US$586 billion on new roads and railways. So commodities may be a decent defensive investment.

Hong Kong investors have a wide range of funds available to them. But before buying in as a knee-jerk reaction to stock markets drowning in a sea of red, investors should carefully examine the arguments for and against commodities. Economists say resources are just a play on economic growth. In other words, do not buy them during recessions.

'The performance of commodities depends on how economies are doing,' said Julian Jessop of London-based Capital Economics.

After all, commodities are just stuff. And stuff, whether it is the food people buy or the metal factories use to make cars, is consumed more when economies are growing and less when money is scarce.

Investors could relate this to their own lives. In Hong Kong, it has become easy to find a taxi, while trams are bursting. This tells us people are consuming less fuel. The cash-conscious are also taking their own lunch to work instead of buying takeaways, consuming less plastic.

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