Buy farm stocks: Macquarie

March 22 | Updated: Mar 23 2006, 05:30am hrs
Investors should buy farming-related shares such as Chaoda Modern Agriculture (Holdings) Ltd and CSR Ltd to benefit from demand in China, as a rally in resources stocks loses ground, according to Tim Rocks, regional strategist at Macquarie Equities Ltd.

Agricultural prices have lagged energy and base metals significantly, Hong Kong-based Rocks said in an interview on Wednesday. In time, all commodity prices - metals, energy and food - move together. A measure of six metals traded on the London Metal Exchange, including copper and zinc, has climbed 128% in five years.

By comparison, wheat futures in Chicago have climbed 36% in the period, corn futures have gained 9.2%, and in Kuala Lumpur palm oil futures have risen 75%.

This year, at least in the stock market, the tables have turned. Chaoda, Chinas biggest publicly traded vegetable grower, has gained 63% after rising 12% in 2005. BHP Billiton, the worlds biggest mining company, dropped 4.9% as a four-year rally in metals stalled, after climbing 48% last year.

Sean Darby, a regional strategist at Nomura International (Hong Kong) Ltd, also says shares of so-called soft commodities producers are more attractive as agricultural prices have lagged metals and energy prices. Some investors, such as AMP Capital Investors Jim Reid, are keen to diversify their holdings by buying agricultural stocks.

There is still some legs left in the mining shares, but we would love to hunt for more of the farming-type commodity stocks, said Mr Reid, who helps manage the equivalent of $1.5 billion at AMPs Value Plus Fund in Sydney There is a general commodities boom on, and the soft commodities is where the next big leg up is likely to come from.

Bloomberg