Bull and bear: Staggering: the price of farm land. Eurozone recovery gathers momentum. UK GDP revised upwards. Global economy: runes point north. China Private equity fund to make investment - The Share Centre Blog

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Michael Baxter

Bull and bear: Staggering: the price of farm land. Eurozone recovery gathers momentum. UK GDP revised upwards. Global economy: runes point north. China Private equity fund to make investment

Written by: Michael Baxter on August 23rd 2013

Category: Bull & Bear, News

Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories include: Staggering: the price of farm land. Eurozone recovery gathers momentum. UK GDP revised upwards. Global economy: runes point north. China Private equity fund to make investment

Staggering: the price of farm land

Staggering is what the Royal Institution of Chartered Surveyors (RICS) called it.

Back in 2004 farm land cost £2,400 an acre, now it is costs £7,440. The cost of farm land has now hit a record high for the eighth consecutive period.

It seems farmers and investors alike have been demanding more land.  RICS said: “Surveyors note that hikes in commodity prices are leading the charge to expand agricultural operations and investors increasingly are seeing land as an economic safe haven.”

RICS said: “Looking ahead, it seems that the market is far from finding its level. Respondents expect the trend of rapidly growing prices to continue over the coming year with a net balance of 46 per cent more surveyors predicting further growth.”

Sue Steer, RICS spokesperson, said: “The growth in farmland prices in recent times has been nothing short of staggering. In less than ten years we’ve seen the cost of an acre of farmland grow to such an extent that investors – not just farmers – are entering the market. If the relatively tight supply and high demand continues, we could experience the cost per acre going through the ten thousand pound barrier in the next two to three years.”

Just to remind you, last year Jim Rogers said: “Agriculture is going to be the big thing in the next 20 years. The best thing you can do is to become a farmer; that is where the money is going to be made. It has been a disaster for the last 20 years, but farmers are going to be driving the Lamborghini in the next 20 years, stock brokers are going to be driving taxis. The smart ones will learn how to drive tractors so they can work for the smart farmers. Anything to do with agriculture — seeds, tractors, fertilizer, water — is going to be extremely profitable over the next 20 years.”

It appears Mr Rogers is not alone in holding those views.

Eurozone recovery gathers momentum

Momentum matters. The Purchasing Managers’ Indices (PMIs) for the Eurozone have been steadily getting better for months. But they were getting better from very low levels. The PMI may have hit a 12 month high, for example, but it still pointed to recession. It is good that PMIs are improving suggested this column some time ago, but they must continue to improve for a while yet before we can celebrate.

Well, they did: so can we celebrate?

The flash composite PMI for the Eurozone hit a 26 month high in August. With a reading of 51.7, from 50.7, it seems that there is now reason to think that the Q2 lift in the region’s GDP was no one-off. Remember any score over 50 is meant to suggest growth.

Germany saw output rise at its fastest rate since January. The PMI for German manufacturing rose to a 25 month high. In fact it was good news across much of the region, except for France that is.

It was not so good in France. The flash composite PMI for France fell from 49.1 to 47.9. It would appear that France’s surprise jump in GDP in Q2 may have been a one-off, even if the growth across the rest of the region looks more entrenched.

Chris Williamson, chief economist at Markit, said: “The third quarter is shaping up to be the best that the euro area has seen in terms of business growth since the spring of 2011. The economic picture from the surveys is therefore coming into line with policymakers’ expectations of a modest yet still fragile return to growth.”

Bull:       The Index is now pointing to growth in GDP of 0.2 per cent quarter on quarter. That is not brilliant but better than recession. More encouragingly, the indices pointed to sharp rises in new orders and export orders. These are both good forward indicators.

Bear:      Alas the PMI for employment is still under 50, pointing to falling employment. The index has been below this level for 20 months.

GDP might be picking up but Eurozone unemployment, especially in some countries, remains at a horrific level.

UK GDP revised upwards

Have you ever noticed that when times are tough and the ONS revises its stats, it tends to revise them downwards. Then when recovery takes root, the revisions appear to be on the upside?

And so it was that the ONS released its second estimate of UK GDP for Q2 and it was an improvement. It is now saying the UK economy expanded by 0.7 per cent in Q2, from 0.6 per cent previously estimated. Year on year growth is now running at 1.5 per cent.

GDP is now 3.2 per cent below peak, but here is the puzzle. The level of employment and total weekly hours are both above their pre-downturn peaks. Exports were the star of the show, rising 3.6 per cent, which is the fastest growth rate since 2011.

Actually it is not really a puzzle. We know the reason. UK employment might be rising, but productivity isn’t.

Still it makes a good change to see the UK outperforming most other large economies.


Chris Williamson from Markit said: “Growth looks likely to have accelerated again in the third quarter. The PMI surveys showed business activity growing in July at the strongest pace since data were first available at the start of 1998.”

Global economy: runes point north

The data on the UK might be good, the PMIs relating to the Eurozone might be encouraging, but here is another titbit of bullishness for you.

The latest composite flash PMIs for China, the Eurozone and the US all improved. In the US the index rose to a five month high, hitting 53.9, the PMI for China rose to 50.1 from 47.7.

Chris Williamson said: “Markit’s August’s flash PMI surveys signalled the first simultaneous improvement in manufacturing conditions in the US, China and Eurozone since mid-2011.”

So maybe this is a day for the bulls.

Except of course, these days the markets don’t like good news, because that means monetary policy might be tightened faster than they expected. And in this era where QE nears its end, good news is seen by many as bad.

It’s case of markets becoming bearish for bullish reasons.

China Private equity fund to make investment

If you want safety, as a general rule of thumb stay clear of AIM, regardless of whether you can hold AIM listed companies in ISAs. If you like your investments with more upside potential (and downside of course) AIM may be the place. And here is an example of an area with high upside and downside potential: small and medium sized businesses in China.

According to China’s State Administration for Industry and Commerce, the total number of SMEs in China was estimated at around 55 million in 2012, accounting for more than 60 per cent of GDP and responsible for more than 80 per cent of urban employment.

Alas, with tightening credit conditions, an estimated 90 per cent or more of these SMEs cannot get bank financing.

Enter Hong Kong based Adamas Asset Management (HK) Limited and AIM listed China Private Equity Investment Holdings Ltd (CPE)

The AIM listed company is to invest US $1 million in a new private equity investment fund due to be launched by Adamas. Its new Greater China Credit Fund LP plans to raise a total of up to US $275 million to target high-return investments in Small and Medium Enterprises (SMEs) predominantly in Greater China across a range of sectors.

A CPR statement said: “An earlier Adamas fund…[had]…already provided investors with exit returns for three out of 11 investments yielding a gross IRR of 27 per cent.”

CPE chairman John Croft said: “Our decision to invest US $1 million in Adamas’s new fund is a strong example of the long-term benefits we expect to realise from our agreement to develop a strategic partnership. Adamas has a strong team with an established track record of identifying and managing successful investments in high-growth Asian opportunities.”

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Tags: Adamas, China Private equity fund AIM, Eurozone GDP, France recession, investing in China, price of farm land, UK GDP

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