Soaring food prices in the past year have squeezed consumers and led to protests in the developing world, but some investors in emerging...
Soaring food prices in the past year have squeezed consumers and led to protests in the developing world, but some investors in emerging markets have profited handsomely.
Many food crops are grown in Latin America, a key regional focus for emerging-market stock funds. The price increases stem from growing demand from emerging economies, supply constraints due to bad weather and the use of food grains for alternative fuels.
Funds invested in Brazil and Argentina may be the biggest beneficiaries of high food prices. Both countries export large amounts of raw materials, says Matthew Peterson, a portfolio manager at Newgate Capital.
Brazilian food exporter Perdigao (PDA), for example, saw export-sales growth of nearly 70 percent in its first quarter. The stock has jumped 78 percent in the past 52 weeks.
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Investors may also invest through commodity exchange-traded funds. One example, PowerShares DB Agriculture (DBA), tracks futures contracts for soy, wheat, sugar and corn.
“Higher agricultural commodity prices are generally positive,” says Brad Durham, managing director of fund research firm EPFR Global. Some countries, such as Thailand, though, have placed restrictions on exports of rice, which could limit future price gains.
Soaring rice and corn prices have shaken the developing world, causing riots in Haiti, Bangladesh and Somalia. Geopolitical risk is endemic to emerging-market investing. Tensions in the Middle East, trade embargoes and human-rights violations make these stocks more volatile than those of developed markets, such as Europe.
For this reason, the sector is only for patient investors, says Morningstar analyst Bill Rocco.
“You should have a 10, 15, 20-year horizon,” he warns.