Hold your nose: garlic is best investment in China

The price of garlic in China has nearly quadrupled since March, propelled by its very pungency to rank ahead of gold and stocks as the country's best-performing asset this year.

The trigger for the bull run may have been the idea that the potent bulb can ward off H1N1 swine flu, Morgan Stanley economists said.

That chimes with some anecdotal evidence. The China Daily reported last week that a high school in Hangzhou, a prosperous city in eastern China, had bought 200 kg of garlic and forced students to eat it every day for lunch to stay healthy.

I don't know about H1N1, but it can prevent ordinary colds, Zhang Ping, 74, told Reuters at a vegetable market in Beijing. Take me. I've not had cold for many years and every year I buy several dozen pounds of garlic.

Others have been looking for darker forces behind the surge.

China Business News said coal mine bosses -- who are often depicted as being both extremely rich and nefarious speculators -- had been playing the garlic market, hoarding bulbs and hauling them between storehouses.

Garlic served as a case study of the asset price appreciation that Morgan Stanley thinks China will have to contend with after a flood of lending by banks to help fight off the global financial crisis.

In some parts of Shandong province, the wholesale price of garlic is up as much as 40-fold.

Too much liquidity in any market can lead to speculation, analyst Jerry Lou said in a research note this week. The most recent evidence of asset speculation in China's commodity markets has been for garlic.

But a more mundane factor may lie at the root of it all.

Garlic prices were extremely low last year, convincing many farmers that it was not worth planting the crop again, a wholesale trader was quoted as saying in the Nanfang Daily.

Supply could not keep up with a pick-up in demand from home and abroad, sending prices sky-high, the trader said.

Yi Xianrong, a researcher with the Chinese Academy of Social Sciences, a top government think-tank, said there was no need for panic.

The garlic market is cyclical. Price rises are short-term and they will fall again before long, Yi told Reuters.