Since Asia consumes the bulk of the world?s commodities, you might think Asian investors would be interested in gaining exposure to the asset class.

But the opposite seems to be the case, with Asian investors, both institutional and retail, having very little direct exposure to commodities and seemingly reluctant to diversify their mix of investments.

That was the impression gained by talking to fund managers, private equity firms, specialised client advisors and commodity sales bankers at the Commodities Week Greater China conference, held in Hong Kong on Tuesday and Wednesday.

Given that speaker after speaker talked up the China growth story as the driver of demand for commodities from crude oil to iron ore and even dairy, the question has to be why investors are reluctant to buy into the demand in front of their eyes.

Many fund managers work on the basis that in a diversified portfolio commodities should amount to about 5%of the total holding. Yet, in Asia this proportion struggles to reach one percent of many portfolios, according to several fund managers.

Why is this, and is it likely to change much in the future?

Asian investors generally aren?t as familiar with commodities as their Western counterparts, and have been late joiners to the boom in interest in resources, despite the continent being the epicentre of the so-called super cycle of commodity demand. Western investors have become accustomed to using paper futures to trade commodity exposure, but in Asia this seems more limited to genuine hedgers, such as oil producers and refiners.

Even the emergence of exchange traded funds, such as the US Oil Fund, which buys the front-month WTI contract on the New York Mercantile Exchange, has yet to tempt institutional or retail investors.

Some of this can be put down to factors such as the type of investments funds or individuals can hold, with restrictions particularly evident in China. But there is a general mistrust of commodity investments, and that’s perhaps related to their performance in recent years.

It was around 2007-2008 by the time Asian investors were becoming interested in gaining commodity exposure, and by the time they committed funds, they were just in time to catch the 2008 global financial crisis and subsequent recession.

Gains in 2009 and 2010 have in some cases been wiped out in 2011 and fund managers and advisors say both large and small Asian investors are dismayed by the volatility of commodities, which make it difficult to profit from buy-and-hold strategies favoured by both pension funds and retail investors in the region.

The exception to this is gold, but even here Asian investors prefer to buy the physical metal, with institutions happy to pay the relatively modest storage costs and retail investors buying either jewellery or small bars and coins .

This preference for a physical asset can be seen in the strong growth in gold purchases across Asia and especially in China.

While pension funds and retail investors in Asia largely shun commodity investment, even more flexible institutions like sovereign wealth funds prefer to buy physical assets rather than investments that provide exposure to commodity prices. These can be investments like private equity ventures or buying stakes in mining, oil or agriculture projects.

As one adviser at the conference said, for most Asian investors commodities are just in the too hard basket and it?s simpler for them to stick to traditional equity and fixed income investments. However, the potential game-changer is that both equities and fixed-income have been hit by the Euro debt crisis, meaning commodities may eventually gain more traction in Asia.

n The author is a Reuters market analyst. The views expressed are personal.