The Word from Hansard (UPDATED 29/07/2010)

U.S. - U.S. President Barack Obama signed the historic 'Restoring Financial Stability Act' into law on Wednesday, July 21st 2010. The Act gives the Federal Reserve the power to supervise the largest financial companies and report to the government any risks the firms may pose to the economy at large.

Before signing the bill the U.S. President told that the new regulations on Wall Street-type financial firms will not only help prevent another meltdown, but also establish the strongest consumer financial protections in history.

According to the new law as a protection against future recessions, the U.S. government will have the ability to seize and liquidate failing financial institutions before their collapse. Global - The Dollar fell to a seven-month low against the Yen but world stocks recovered earlier losses on Thursday after Federal Reserve chairman Ben Bernanke painted a gloomy outlook for the U.S. economy.

Bernanke said the Fed stood ready to ease monetary policy further if the budding U.S. economy recovery withers, describing the outlook as "unusually uncertain."

The publication of European bank stress tests, due on Friday (see article below), also kept investors cautious. Europe is testing how 91 banks would cope with another economic slump and losses on government debt in the wake of the euro zone sovereign debt crisis.

Global - A China-based ratings agency called Dagong Global Credit Rating published sovereign debt ratings on 50 countries that is markedly different from the rankings of Standard and Poor's, Fitch, and Moody's, the Western ratings agencies. Dagong currently rates over 25percent of domestic companies in its native China.

"The ongoing financial crisis which originated from the U.S. and the latest Greek debt crisis, have fully revealed the shortcomings and defects of existing sovereign credit rating agencies. In this context, the international community has reached consensus to reform the existing international credit rating system," Beijing-based Dagong said in a press release.

Its rather unique focus, which differentiates it from Western rating agencies, is their emphasis on fiscal revenues and not financing income. In other words, a country that relies on borrowing money to cover its debt obligations is less stable than a country that uses tax revenues to repay its debt, even if the former country can borrow with relative ease and certainty. "Dagong emphasizes the country's capability to pay its debt," the firm said.

Europe - European officials appeared to be at odds on Thursday over whether to release stress test results earlier than planned and reveal banks' exposure to sovereign debt, in a last-minute struggle over how to regain confidence in the financial sector.

The confusion over the timing adds to weeks of uncertainty and rumors about the tests, seen as key to show how banks would cope with another economic slump and losses on government debt after the Greek crisis raised fears of a euro zone crunch.

French and German supervisors are among those pushing to bring forward the release of the results to give European markets a chance to react rather than leave the first judgment to U.S. markets.

Europe - Growth in Europe's services and manufacturing industries unexpectedly accelerated in July as concern over the sovereign debt crisis eased and an increase in global trade spurred exports.

"It was surprisingly robust," said Klaus Baader, chief euro-region economist at Societe Generale in London. "It looks as if the second half won't show as much cooling as expected."

Other data also pointed to a stronger-than-expected recovery. European industrial orders rose 3.8percent in May, instead of the monthly contraction economists had projected, while French business confidence increased more than forecast this month.

China - China's stocks rose for a fourth day on Thursday, posting their longest stretch of gains since February, on speculation slowing economic growth will prompt the government to relax property curbs and allow for more bank lending.

The central bank has raised banks' reserve requirements three times this year and the government boosted down payments and mortgage rates for multiple-purchases of homes to curb record lending growth and asset bubbles. The Shanghai index has fallen 22percent this year on concern measures to control real estate speculation and rising consumer prices will damp earnings.

China - China's central bank will seek to publish a measure of the Yuan's value "regularly" to help it manage the exchange rate against a basket of currencies and not just the Dollar, Deputy Governor Hu Xiaolian said.

The People's Bank of China aim to publish the nominal effective exchange rate, Hu said in an online statement on Thursday. These indexes are typically weighted according to the amount of trade a nation has with its partners and aren't adjusted for inflation. She said this will help shift the market's attention away from the rate against the greenback.

"We need to guide the public to change its habit of mainly watching the bilateral Dollar-Yuan rate," Hu said. "The level of the Yuan's effective rate should gradually become a reference for exchange-rate adjustments."

Brazil - Brazil's central bank signaled it may stop raising interest rates soon after policy makers unexpectedly slowed the pace of increases and said inflation was less of a threat amid slowing global growth.

The bank's board, led by Henrique Meirelles, increased the benchmark interest rate half a point to 10.75percent on Wednesday.

Latin America's biggest economy shows signs of slowing, after expanding 9percent in the first quarter, the fastest pace in 15 years. "The statement looks like the end of the rate increase cycle," Ures Folchini, head of fixed income at Banco WestLB do Brasil SA, said. "The central bank is seeing that the economy is no longer heated and that the risk of inflation becoming uncontrolled has fallen."

Middle East - Dubai World, the state-owned company seeking to renegotiate the terms on USD23.5bn of debt, began presenting its debt restructuring plan to about 70 banks on Thursday.

Dubai World is making presentations in Dubai after a group of its seven biggest lenders said on May 20th that they agreed to its broad terms. Bankers from Royal Bank of Scotland Group Plc, Bank of Baroda, Mashreqbank PSC, ICICI Bank Ltd., Morgan Stanley, Arab Bank, National Bank of Oman and Union National Bank were seen arriving for the meeting.

"We have to wait and hope for the best," Mohamed Zein, senior vice president and head of corporate banking at Union National Bank, said before he entered the conference hall. He said he was "optimistic" about the meeting.

Spotlight on the rise in popularity of Agriculture funds

Agricultural funds have historically been the domain of smaller, specialist fund managers, more often aimed at high net worth individuals as a complimentary 'satellite' investment option alongside a traditional equity/fixed interest portfolio. So when BlackRock (the worlds' largest asset manager) announced that they are about to enter the sector with their own agricultural fund, a relatively unknown area of investments suddenly started to attract a flurry of activity.

The agricultural option is one that Hansard clients have had available since May 2008, the popular Aliquot Agriculture fund managed by Castlestone fund managers providing direct exposure to farming commodities such as livestock & grains, as opposed to investing in agriculture related company shares, as with the new BlackRock offering.

Regardless of the route that these funds take, the compelling fundamentals behind agriculture funds remain the same, working on the basic premise of 'supply & demand', although providers are quick to point out that agricultural funds are very much a long-term play. "The agriculture theme is a slow burner, rather than a way to make a quick buck. The underlying argument that managers use, of an increasingly wealthy emerging market population that will change its eating habits to include (for example) more beef, certainly exists, but investors won't see an overnight demand increase," Tim Cockerill, head of research at Ashcourt Rowan said.

This is a view shared by Tim Mitchell, Head of Specialist funds at Invesco, who cites the longevity of agricultural funds as one of its main draws, "this sector is not about a six-month, one-year or three year view. It's about taking a long-term view on demographic change and the growing middle class in Asia and India."

Jonathan Blake, manager of the Barings Global Agriculture fund adds "We've been excited about the agriculture story for some time, principally because of the long term investment theme we call 'the three Fs;' food, feed, and fuel,"

Blake adds that increasing demand for food will be fuelled by a global population growth, feed relates to changing dietary habits of an increasingly wealthy emerging market population, and fuel relates to the movements in technology, and the biofuels which will be needed to power them.

The statistics behind the forecasts certainly stack up, with emerging market economies being the prime drivers. The United Nations' most recent global population growth forecast predicts that the current 6.5bn people on our planet will increase to 9.3bn by 2050, that's three new mouths to feed every eight seconds. Significant shifts in the dietary behaviour of people from emerging economies, particularly China and India, to protein and dairy-based diets will transform agricultural demand. To put this into context, from a raw materials perspective, to produce 1kg of beef takes 8kg of feed.

Not immune from external economic factors, agriculture funds were also affected by recent events, as Guy Brook of Castlestone Management, managers of the Hansard Aliquot Agriculture fund explains "the global economic meltdown of the last year and the massive financial deleveraging seen in the wake of the collapse of Lehman Brothers in September 2008 battered down agricultural commodities along with everything else. Demand for biofuel evaporated and consumers cut back on expensive high-protein diets while investors desperate for liquidity crowded the exits to sell at any price. While prices have not climbed back to the heights from which they fell, global economic recovery and individual commodity fundamentals both paint a bright picture.

Global stimulus has started to right the economic ship and drive demand for many commodities. Cocoa grindings have reversed their decline, Chinese demand for soybeans is insatiable and higher energy prices are renewing demand for biofuel."