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Fast food

Commodities and property have been in the news in recent days, perhaps as a consequence of investors looking for an asset class unlikely to be sullied by the sub-prime meltdown. Both these potential homes for what appears to be a never-ending tide of liquidity have not been without their problems, however.

Property has suffered as investors attempt to lock in profits or reverse a too recent jump on to a bandwagon reportedly running out of steam. Falls in the share prices of property giants such as British Land and Land Securities show how nervous investors have become. Declines of a quarter or so over the past six months contrast with a rise of close to 10 per cent in the wider index. Could now be the time to pile back in – assuming you had the foresight to bale out in the first place?

Property funds have been even more testing. By moving to a bid basis on pricing, managers are acknowledging that there are more sellers than buyers. Demand has been hit by growing realisation that domestic commercial property is far from cheap. Unlike the quoted property companies, however, no appreciable gap has opened between the price investors pay for a fund and the value of the underlying assets.

Commodities are a more difficult call. Recent results demonstrate that demand, particularly from China, remains robust but for how much longer? Shares like BHP, RTZ and Anglo American remain close to all-time highs but some pressure points are emerging. Steel has been softening in price, primarily as a consequence of too much capacity coming on stream in China. Oil is retrenching, having enjoyed a resurgence in demand during the spring. Some point to the market in these basic commodities reaching the end of an impressive bull run encouraged by unprecedented merger activity and the listing of many businesses, some in quite esoteric locations.

Little wonder there has been a growing focus on so-called soft commodities. Agricultural goods have been rising sharply in price, driven by demand from the Far East, and the launch of agricultural funds has become a popular pastime among fund management houses. There is every reason to believe that agricultural product inflation could be with us for some little time.

At a seminar last week hosted by Barclays Financial Planning, New Star’s Theodora Zemek painted a gloomy picture for the bond market based on the premise that inflation had returned as an issue for investors. According to information she dealt out to an audience of Barclays customers, vegetable prices have risen by nearly 10 per cent since the start of the year, bread is up strongly in price and the severe wet weather in this country has generated a pea shortage, with all the consequences that will bring about.

Her conclusion was that real assets – commodities, real estate and equities – will continue to make the running for the time being. Food price inflation is expected to add 20 to 50 per cent to the cost of the average shopping basket over the course of the next decade. Not that there is really any such thing as the average shopping basket, with personal inflation running at anything from 2 to 10 per cent depending on who you are and what you spend your money on.

Food has declined in importance as a component of the average weekly spend in this country over the course of the past 50 years. More efficient farming methods, better distribution and, of course, the massive expansion of the supermarket trade have all combined to suppress food price inflation. But an expanding world population, wealthier and more demanding consumers in the developing world and the diversion of vast tracts of land to growing bio-fuels could mean that food once again becomes an important part of the inflation calculation. Investors need to factor this into their strategy.

Brian Tora ( is principal of The Tora Partnership


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