Best Property Investments for 2010

Which investments are likely to perform best in 2010, and why? Marino Valensise, global chief investment officer at Baring Asset Management gives his view to Asian Investor;

We are very much sponsoring the emerging-market equity trade, based on demographics. In terms of demographics, when comparing the East and the West, the difference has never been so dramatic. The East/West split is particularly significant, because there is a significant correlation between demographics and economic growth.We take an interest in agriculture, commodities and stocks as a result of these demographic fundamentals.

GDP per capita in emerging markets is still low in absolute terms, but is growing fast. As it grows, the dietary requirements of the population change - people tend to eat more and better and consume more proteins. This has always been the case; take Japan in the post-World War II years, South Korea in the industrialisation years [of 1962-1989] and the US 120-130 years ago.

And in order to eat more and better, you need more corn, wheat and soybeans, and more equipment to work the fields. You can play [this theme] through commodities and through stocks related to the food chain -- from fertiliser makers to food distributors to equipment manufacturers.

Another attract feature is that this theme has not got more expensive compared to a year ago. In fact, the price of agricultural commodities via an ETF is actually cheaper than a year ago. They have not rallied with stocks; this is the cheapest commodity theme you can play. Emerging markets will drive this demand.

Barings' agricultural fund holds around 60-70 stocks linked to that theme, emerging, non-emerging, small and large caps. We have stocks listed in emerging markets, but we also have stocks listed in markets like the US -- such as [agricultural biotechnology company] Monsanto and [equipment maker] John Deer. These are multinationals that also sell into emerging markets. We also hold around four or five fertiliser makers globally, including [Canadian company] Potash Corp and Taiwan Fertiliser.

Another area that may be interesting going forward is property in developed markets, since governments are giving out money at low rates. Commercial property prices in the UK are down 30-40% from their peak in June 2007.Annual rental yield is now 6-7% for UK commercial property. If you can borrow at 1% and get that yield, that's a decent return, especially on something that's already dropped that much [meaning prices are likely to rise again]. And in the UK, commercial property has gone down more than residential prices, although on the flip side, it is more closely linked to the economy, making it more dangerous.

Central banks are encouraging this carry trade, so property post-crash is something that is very attractive. Also, if you buy property instead of putting money into deposits, you also get some inflation protection.The commercial property theme in the UK has been out of favour in the past 12-24 months, but is now gaining interest.

Asian Investor