Tobacco Sector a Certain Buy: Hendry

Tobacco stocks, especially in the US, are among the few assets that Hugh Hendry, chief investment officer at hedge fund Eclectica, said he likes Tuesday, but he added investors should be prudent as world economies are still in the middle of a deleveraging trend.

Altria and Philip Morris are interesting choices as they are "priced in dollars," Hendry said, adding "I like dollars."

"One of the things we know with certainty is that people smoke, they're addicted to it," Hendry added.

He said he was getting a 9 percent yield on the stock, but, because of the fragile economic situation, was thinking of buying senior debt, which would give the same yield but offers more security in case of bankruptcy.

"As a society, we have taken debt… to almost four times greater than the economy. That's unprecedented. And it's a turning point," Hendry said. "Governments around the world want some inflation, and they are targeting inflation. It's one thing to target it and another to achieve it. Who wants to take on debt today?"

Because of this, the economy will continue to contract and commodities such as oil are not a good bet either, according to Hendry.

Bonds are not a good buy for the summer, as they are usually an investment for the second half of the year, and investors should be "patient and scared" and, at the end of debt deflation, may get "fantastic values".

Gold has behaved as a risk-free asset, but Hendry said he hopes for a correction in the price of gold to around $600 to $700 per ounce, from the current level of $898, to start buying.

"I'm not saying it will happen, but stranger things have happened," he said. "Gold investors have had it easy. I expect gold to get a bit more uncomfortable for the people who hold it in the short term."

"The intellectual case for gold is very strong. Governments are printing money, but only God prints gold and that takes billions of years."

• Slideshow: What's in the UK Budget

© 2009 CNBC.com