<B>Figure 2 ? 15-day rolling volatility</B>

■ <B>Why Commodities?</B>

Resilient economic development in emerging economies and forecast high inflation rates are the main factors supportive of commodities (metals in particular). Given that the likes of China and India in particular are anticipated to keep on investing in their infrastructure, the fundamentals for metals remain positive, since demand would nevertheless be sustained by these emerging economies despite a forecast slowdown in demand from developed economies. This is one of the main reasons why metal futures have held up despite the recent November correction in metals prices.

Even if demand for their products weakens, manufacturers will find that it is more and more expensive to get hold of basic materials. This will be exacerbated by the fact that new mines are taking longer than expected to come into production because of a shortage of skilled workers and specialist equipment. Mining companies are encountering growing political risk as higher commodity prices lead to more ?resource nationalism? and governments demanding a greater share in the profits from mines in their countries. Such uncertainties will continue to sustain base metals price growth. Over the next six months, metals prices are likely to remain low as the US economy continues to slow but the long term story remains intact. Furthermore, the growth of emerging economies will not mean the end of business cycles, or the end of commodity price volatility!

As a hedge against inflation, the investor should consider holding commodities (metals but also energy) in his portfolio since a spike in inflation is normally the consequence of increasing commodity prices. This is indeed the situation currently with prices skyrocketing, leading to higher inflationary pressures. Moreover, investing in commodities would prove to be a good hedge against the USD as well. A weakening dollar equals to rising commodity prices!

<B>USA: Inflation vs Commodity Index</B>

■ <B>But beware?</B>

Although investing in commodities in the current economic environment should pay off positively for the investor over a five year period, one has to bear in mind that alternatives such as real estate funds, hedge funds and commodities should not form more than 20% of a well-diversified portfolio. With inflationary expectations remaining high in Mauritius, commodity investment should however not be ignored. The prevailing regime on the international front should be a bear market regime. In this kind of market, investors should display patience instead of hope and focus on long term fundamentals. In this context, the outlook for commodity investment remains relatively strong.

<B> Contributed by Investment Professionals Ltd (Feedback: [email protected])</B>

<B>Disclaimer</B>

■ This analysis report is provided by «Investment Professionals Ltd.» for information purposes only. Neither the information nor any opinion expressed constitutes an investment advice, an offer or an invitation to make an offer, to buy or sell any fund or stocks. This report does not have regard to the specific investment objectives and financial situation of any specific person who may receive/read this report. Investors should seek financial advice regarding the appropriateness of investing in any funds or stocks and should understand that future expectations may not be realized. Investors should note that the price or value of any funds or stocks may rise or fall. Past performance is not a guide to future.