GLOBAL - China's growing gross domestic product (GDP) per capita is driving demand for timber, according to FIM Services.
According to Robert Daniell, consultant at FIM, urbanisation in emerging markets has boosted demand for timber, although it remains subdued in developed economies such as the UK and the US where the effect of the financial crisis continues to linger over the house-building sector.
He said: "Due to high freight costs, timber was usually shipped to only the nearest country in the past. But timberland is becoming an increasingly global market, spurred by growing demand particularly from the BRIC countries. By 2015-16, China's fibre gap, for example, is predicted to be equal to the equivalent of Canada's 2009 total timber harvest."
According to the IPD forestry index, timberland has outperformed UK equities, gilts and commercial property over the last 10 years. Other incentives to invest in forestry in the UK include tax-efficiency, as there is no liability to income or capital gains tax on the timber and there is 100% relief from inheritance tax once held for two years.
"It is also an asset backed investment and in times of low timber prices you simply let the trees grow and harvest later," said Daniell.
"As part of the commodity boom, the outlook for timber is very positive. Unlike agricultural land prices, which have been soaring, the price of prime forestry land at circa £2,000 to £2,5000 [€2,278 to €2,847] per hectare in the UK has been relatively stable."
But Daniell said that unlike in the US, few pension funds are currently investing in timberland, mainly due to the small size of investments available to them in the UK.
Elsewhere, research by Mauritius-based asset manager Sustainable Capital argued that as minority shareholders invested in listed subsidiaries of multinational companies in Africa, investors should ensure good corporate governance practices in order to overcome the inherent conflict of interest between minority shareholders and management - as well as majority shareholders, such as multinational parent companies that control their local subsidiaries.
Most listed companies in Africa ex-South Africa - 71% of the top 100 companies by market cap - have majority/controlling shareholders and, more specifically, 28% are listed subsidiaries of multinational companies, according to Sustainable Capital.
Major conflicts of interests may arise when distributing value between majority and minority shareholders, the organisation warned. In these cases, minority shareholders face the risk of material value destruction, it said.
Sustainable Capital added that the risk was exacerbated by "perverse" management practices that saw listed subsidiaries of multinational companies (LSMC) management teams employed directly by the parent company and benefit from share-based incentives at the holding company level. They argued that this provided "no meaningful incentive" for value creation at the local subsidiary level.
Gaёtan Herinckx, senior investment analyst at Sustainable Capital, said: "We estimate over 80% of share-based incentives take place at the parent company level."