The trade relationship between Canada and the United States has recently been making news and is among the largest in the world, with more than USD1 trillion in annual trade in goods and services. Agricultural and farm goods are always at the heart of discussions as the divide is philosophical. The US philosophy favours regulation in a free-market structure, while Canada sacrifices free market for income stability as found in the case of dairy farm quotas.

Regulatory differences affect competitivity. In the example of food additives, Canada generally requires pre-market approval by Health Canada before an additive may be used in food. The United States also regulates additives through the Food and Drug Administration (FDA), but permits the “Generally Recognized as Safe” (GRAS) framework, which allows ingredients to enter the market without the same formal review process. This has led to perceptions that Canada applies a more precautionary approach to food regulation. Small changes in regulations can affect farmer and grower profitability significantly.

The good news

North America is changing; dietary guidance in both Canada and the United States has shifted toward promoting whole foods and limiting highly processed foods. The next twenty years of food regulation may look much more like health-care regulation. Future regulators are increasingly likely to focus on metabolic health, chronic disease, nutritional quality and ingredient transparency. The food industry could experience a transformation similar to what happened with tobacco decades ago: not outright prohibition, but progressively tighter restrictions on ingredients perceived to contribute to long-term health costs. The resulting shift toward “food as medicine” may become one of the most important secular themes in agriculture, nutrition and health care.

Over the next decade, food safety regulators across the globe will increasingly focus on ultra-processed foods, food additives and dyes, sugar content, antibiotic use in livestock and nutritional labeling.

Raising the standards on raising proteins

These regulatory trends also apply to proteins, which are often affected by antibiotics and pesticide usage where regulations differ greatly by region.

As an example, Norway is generally considered the world’s most advanced and stringent salmon regulator. Amongst other measures, the country:

• Enforces strict sea-lice thresholds,
• Uses a “traffic-light” system that can limit industry growth if environmental impacts become excessive, and
• Explicitly incorporates wild salmon health into licensing decisions.

Norway has effectively said growth is permitted only if environmental performance improves.

These standards benefit companies that participate in the salmon industry via closed containment systems, sea-lice technologies, vaccines or aquaculture automation. This has allowed Norway to become the leading producer of high-quality salmon globally.

SalMar ASA (SALM NO) is the world’s second-largest Atlantic salmon producer. Headquartered in Frøya, Norway, the company operates a highly cost-efficient, vertically integrated aquaculture model spanning broodstock, smolt, ocean farming and processing. It sells to over 50 countries worldwide.

SalMar’s production footprint covers:

• Norway (Central & Northern): The foundational engine representing the vast majority of its volume.
• Iceland: Operates through its majority-owned subsidiary, Icelandic Salmon.
• Scotland: Runs a 50/50 joint venture via Scottish Sea Farms.
• SalMar Ocean: Its pioneering offshore and open-sea aquaculture division.

SalMar holds extensive unutilized capacity within its current operational licenses. Driven by exceptional biological performance (such as superior fish survival and growth rates), SalMar raised its full-year 2026 harvest guidance to 350,000 tonnes, marking a sharp 16% year-over-year volume increase from 2025. The company anticipates scaling this existing organic footprint further to reach 378,000 tonnes by 2028.

Agricultural pesticides

In agriculture, pesticide regulation can drastically affect the competitive landscape. This is evident when border regions grow similar produce such as California and Mexico.

Mexico has taken a strict stance against highly hazardous pesticides (HHPs). The country has banned over 180 pesticides that remain legally authorized in the United States, including systemic adjustments to phase out glyphosate. On the other side of the border, while California permits the use of certain chemicals banned in Mexico, it severely restricts how and when they can be applied (e.g., rigid tracking of drift, groundwater protection zones and strict worker re-entry intervals).

The California Department of Pesticide Regulation annual marketplace surveillance reports consistently shows that 97% to 98% of California-grown produce is completely compliant or features non-detectable residues. It is imported produce that dynamically accounts for a disproportionate volume of illegal pesticide residue violations.

For Mexican avocados and lemons to enter the US market legally, they must comply with US EPA pesticide residue tolerances. While Mexican avocados generally test clean because their thick, unconsumed skins shield the fruit, other Mexican citrus crops (like limes and lemons) occasionally trigger border enforcement actions due to traces of unapproved or excessive pesticides.

Global Alpha is invested in Limoneira Company (LMNR US), a diversified global agribusiness and land management corporation headquartered in Santa Paula, California.

Founded in 1893, they manage roughly 14,500 acres of agricultural land. Limoneira controls extensive global supply chains by sourcing citrus across the United States, Chile, South Africa and Mexico to ensure year-round supply for retail and foodservice buyers. Beyond pure farming, the company holds high-value, adjudicated water rights and operates a profitable real estate development arm.

Limoneira is undergoing a core business model transformation designed to unlock hidden asset value and shift capital into higher-margin segments.

Limoneira is aggressively shifting underutilized land into avocado production to capture robust, multiyear US demand growth. Avocado farming boasts superior unit economics over standard lemons. Driven by 400 acres planted in 2023 and 2024 finally reaching commercial maturation, management projected avocado production to exceed 10 million pounds in fiscal year 2027 – representing an ambitious 30% volume expansion. The company aims to add another 500 avocado acres by the end of 2027.

US trade case against Chinese choline

As food regulations increase, discrepancies between countries will multiply trade disputes and antidumping (AD) cases. In June 2026, a petition was filed alleging that Chinese producers were benefiting from Chinese government subsidies and dumping choline salts into the US market at unfairly low prices.

The U.S. Department of Commerce initiated AD and countervailing duty (CVD) investigations in July 2026, and the United States International Trade Commission (USITC) subsequently found a reasonable indication of injury to the US industry, allowing the investigations to proceed. The alleged dumping margins are substantial, ranging from 73% to over 300%. AD and CVD investigations are intended to protect US industries and workers from unfairly priced or subsidized imports as evidenced by this case regarding choline from China.

Choline is an essential nutrient used in poultry feed, swine feed, aquaculture, infant formula, human dietary supplements, functional foods and nutraceuticals.

Global Alpha participates in choline manufacturing through Balchem Corporation (BCPC US), a specialty ingredients company that operates at the intersection of nutritional science, microencapsulation technology and precise formulation.

Balchem focuses on niche markets where science-backed efficacy and stringent regulatory compliance allow for premium pricing, instead of competing as a bulk commodity supplier. The company is the global leader in choline production, dominating the market across both human and animal nutrition segments.

Rather than treating choline as a cheap bulk commodity, Balchem has spent over 50 years leveraging its proprietary manufacturing, purity testing and delivery technologies to command the leading global market share. The company’s revenue is diversified across three core business segments:

• Human nutrition & health (63% of revenue): High-margin specialty ingredients like branded choline, mineral amino acid chelates, vitamin K2 and texturizing systems used in dietary supplements, infant formula and functional foods.
• Animal nutrition & health (23% of revenue): Rumen-protected microencapsulated nutrients and choline delivery mechanisms that optimize health and milk production in dairy cattle and livestock.
• Specialty products (14% of revenue): High-purity gases and packaged chemicals used primarily in medical device sterilization, agricultural fumigation and plant micronutrient delivery.

As regulation continues to reshape agricultural costs and competitiveness, locally focused producers with resilient supply chains may be best positioned to manage inflationary pressures – a thematic we continue to follow closely at Global Alpha.

The post Regulation on the menu: Finding opportunity in a changing food system appeared first on Groupe financier Connor, Clark & Lunn ltée.

The trade relationship between Canada and the United States has recently been making news and is among the largest in the world, with more than USD1 trillion in annual trade in goods and services. Agricultural and farm goods are always at the heart of discussions as the divide is philosophical. The US philosophy favours regulation in a free-market structure, while Canada sacrifices free market for income stability as found in the case of dairy farm quotas.

Regulatory differences affect competitivity. In the example of food additives, Canada generally requires pre-market approval by Health Canada before an additive may be used in food. The United States also regulates additives through the Food and Drug Administration (FDA), but permits the “Generally Recognized as Safe” (GRAS) framework, which allows ingredients to enter the market without the same formal review process. This has led to perceptions that Canada applies a more precautionary approach to food regulation. Small changes in regulations can affect farmer and grower profitability significantly.

The good news

North America is changing; dietary guidance in both Canada and the United States has shifted toward promoting whole foods and limiting highly processed foods. The next twenty years of food regulation may look much more like health-care regulation. Future regulators are increasingly likely to focus on metabolic health, chronic disease, nutritional quality and ingredient transparency. The food industry could experience a transformation similar to what happened with tobacco decades ago: not outright prohibition, but progressively tighter restrictions on ingredients perceived to contribute to long-term health costs. The resulting shift toward “food as medicine” may become one of the most important secular themes in agriculture, nutrition and health care.

Over the next decade, food safety regulators across the globe will increasingly focus on ultra-processed foods, food additives and dyes, sugar content, antibiotic use in livestock and nutritional labeling.

Raising the standards on raising proteins

These regulatory trends also apply to proteins, which are often affected by antibiotics and pesticide usage where regulations differ greatly by region.

As an example, Norway is generally considered the world’s most advanced and stringent salmon regulator. Amongst other measures, the country:

• Enforces strict sea-lice thresholds,
• Uses a “traffic-light” system that can limit industry growth if environmental impacts become excessive, and
• Explicitly incorporates wild salmon health into licensing decisions.

Norway has effectively said growth is permitted only if environmental performance improves.

These standards benefit companies that participate in the salmon industry via closed containment systems, sea-lice technologies, vaccines or aquaculture automation. This has allowed Norway to become the leading producer of high-quality salmon globally.

SalMar ASA (SALM NO) is the world’s second-largest Atlantic salmon producer. Headquartered in Frøya, Norway, the company operates a highly cost-efficient, vertically integrated aquaculture model spanning broodstock, smolt, ocean farming and processing. It sells to over 50 countries worldwide.

SalMar’s production footprint covers:

• Norway (Central & Northern): The foundational engine representing the vast majority of its volume.
• Iceland: Operates through its majority-owned subsidiary, Icelandic Salmon.
• Scotland: Runs a 50/50 joint venture via Scottish Sea Farms.
• SalMar Ocean: Its pioneering offshore and open-sea aquaculture division.

SalMar holds extensive unutilized capacity within its current operational licenses. Driven by exceptional biological performance (such as superior fish survival and growth rates), SalMar raised its full-year 2026 harvest guidance to 350,000 tonnes, marking a sharp 16% year-over-year volume increase from 2025. The company anticipates scaling this existing organic footprint further to reach 378,000 tonnes by 2028.

Agricultural pesticides

In agriculture, pesticide regulation can drastically affect the competitive landscape. This is evident when border regions grow similar produce such as California and Mexico.

Mexico has taken a strict stance against highly hazardous pesticides (HHPs). The country has banned over 180 pesticides that remain legally authorized in the United States, including systemic adjustments to phase out glyphosate. On the other side of the border, while California permits the use of certain chemicals banned in Mexico, it severely restricts how and when they can be applied (e.g., rigid tracking of drift, groundwater protection zones and strict worker re-entry intervals).

The California Department of Pesticide Regulation annual marketplace surveillance reports consistently shows that 97% to 98% of California-grown produce is completely compliant or features non-detectable residues. It is imported produce that dynamically accounts for a disproportionate volume of illegal pesticide residue violations.

For Mexican avocados and lemons to enter the US market legally, they must comply with US EPA pesticide residue tolerances. While Mexican avocados generally test clean because their thick, unconsumed skins shield the fruit, other Mexican citrus crops (like limes and lemons) occasionally trigger border enforcement actions due to traces of unapproved or excessive pesticides.

Global Alpha is invested in Limoneira Company (LMNR US), a diversified global agribusiness and land management corporation headquartered in Santa Paula, California.

Founded in 1893, they manage roughly 14,500 acres of agricultural land. Limoneira controls extensive global supply chains by sourcing citrus across the United States, Chile, South Africa and Mexico to ensure year-round supply for retail and foodservice buyers. Beyond pure farming, the company holds high-value, adjudicated water rights and operates a profitable real estate development arm.

Limoneira is undergoing a core business model transformation designed to unlock hidden asset value and shift capital into higher-margin segments.

Limoneira is aggressively shifting underutilized land into avocado production to capture robust, multiyear US demand growth. Avocado farming boasts superior unit economics over standard lemons. Driven by 400 acres planted in 2023 and 2024 finally reaching commercial maturation, management projected avocado production to exceed 10 million pounds in fiscal year 2027 – representing an ambitious 30% volume expansion. The company aims to add another 500 avocado acres by the end of 2027.

US trade case against Chinese choline

As food regulations increase, discrepancies between countries will multiply trade disputes and antidumping (AD) cases. In June 2026, a petition was filed alleging that Chinese producers were benefiting from Chinese government subsidies and dumping choline salts into the US market at unfairly low prices.

The U.S. Department of Commerce initiated AD and countervailing duty (CVD) investigations in July 2026, and the United States International Trade Commission (USITC) subsequently found a reasonable indication of injury to the US industry, allowing the investigations to proceed. The alleged dumping margins are substantial, ranging from 73% to over 300%. AD and CVD investigations are intended to protect US industries and workers from unfairly priced or subsidized imports as evidenced by this case regarding choline from China.

Choline is an essential nutrient used in poultry feed, swine feed, aquaculture, infant formula, human dietary supplements, functional foods and nutraceuticals.

Global Alpha participates in choline manufacturing through Balchem Corporation (BCPC US), a specialty ingredients company that operates at the intersection of nutritional science, microencapsulation technology and precise formulation.

Balchem focuses on niche markets where science-backed efficacy and stringent regulatory compliance allow for premium pricing, instead of competing as a bulk commodity supplier. The company is the global leader in choline production, dominating the market across both human and animal nutrition segments.

Rather than treating choline as a cheap bulk commodity, Balchem has spent over 50 years leveraging its proprietary manufacturing, purity testing and delivery technologies to command the leading global market share. The company’s revenue is diversified across three core business segments:

• Human nutrition & health (63% of revenue): High-margin specialty ingredients like branded choline, mineral amino acid chelates, vitamin K2 and texturizing systems used in dietary supplements, infant formula and functional foods.
• Animal nutrition & health (23% of revenue): Rumen-protected microencapsulated nutrients and choline delivery mechanisms that optimize health and milk production in dairy cattle and livestock.
• Specialty products (14% of revenue): High-purity gases and packaged chemicals used primarily in medical device sterilization, agricultural fumigation and plant micronutrient delivery.

As regulation continues to reshape agricultural costs and competitiveness, locally focused producers with resilient supply chains may be best positioned to manage inflationary pressures – a thematic we continue to follow closely at Global Alpha.

The post Regulation on the menu: Finding opportunity in a changing food system appeared first on Groupe financier Connor, Clark & Lunn ltée.

Flávio Bolsonaro’s strong showing in the first round of Brazilian presidential elections on the 4^th of October was the catalyst for a sharp rally in the Ibovespa Index this month. In previous commentaries, we argued that the market trading at a price-to-earnings ratio of around 8x reflected political uncertainty. Further, we suggested the emergence of a credible conservative candidate to contest the elections would be fuel for outperformance relative to broader EM equities.

 
In our view, São Paolo governor Tarcísio de Freitas and Mission Party leader Renan Santos would have been the most credible right-wing contenders. We were wrong to discount the chances of a Flávio Bolsonaro candidacy, largely based on his connection to Daniel Vorcaro, who has been engulfed in a vast financial and political fraud case.

Senate swings to the right

Despite Flávio’s many glaring flaws as a candidate, he posted a stronger-than-expected showing in the first round of presidential elections taking 47.0% in the runoff against Lula’s 45.1%. Polls had understated Flávio’s performance by about 5pts.

In the second-round runoff with Lula, Flávio is the clear favourite. He needs only about half of the roughly 7.7% first round vote share that went to other, mostly right-leaning candidates. The first-round leader has won every runoff since 2002.

Arguably, the most important shift was in the 81-seat Senate where the number of seats held by the left-wing Social Democratic Party (PSD) collapsed from 14 to five, the right-wing Liberal Partyrose to 28 seats from 15, while a right-of-centre bloc controls 48 seats. So even if Lula were to win the presidency, he would face fierce opposition in the Senate.

Yields plummet and rate-sensitive stocks outperform

The Ibovespa soared by over 12% in USD terms the day after the election results were announced, with investors anticipating a more market-friendly administration. We currently hold a modest overweight to Brazilian equities and, over a period of months, have been tilting the risk budget within the allocation to more rate-sensitive names that would benefit from falling yields on the prospect of a return to a more conservative fiscal policy.

These stocks outperformed through the post-first-round period, bolstered by policy announcements from the Bolsonaro team which suggest they plan to hit the ground running should they take out the second round.

Economic advisor to Flávio Bolsonaro, Luiz Felipe Trevisan, posted a series of policy commitments with some set for immediate rollout (before inauguration via Congress):

• “Super PEC” fiscal package: Plan to leverage political momentum immediately post-election to pass a R$190–200B (~1.5% of GDP) spending cut before inauguration. Focuses on internal state efficiency (administration reform, cutting 10 ministries, fraud reduction, asset sales) without touching social benefits, pensions or immediate LCI/LCA tax incentives.
• Ending re-election as bargaining chip: Proposes abolishing presidential re-election to gain Congressional support for tough fiscal reforms, positioning this as a single-term legacy play to build a bridge for Tarcísio in 2030.
• Budget and institutional governance: Aims to reform expenditure rules so Congress and the Judiciary share accountability for the spending they create. Includes setting 15-year term limits and minimum qualifications for Supreme Court (STF) nominees.
• Pro-growth and capital markets: Targets boosting infrastructure investment to R$500B/year, maintaining full Central Bank independence, revoking ~1,000 regulations (“Economic Freedom 2.0”), and levelling tax treatment on corporate debt to attract foreign credit.

Since the 2000s mining boom the share of Brazilian equities has collapsed.

 
While EM valuations look attractive overall, Brazilian equities look especially cheap and poised to outperform on a better macro backdrop.

 
There is no shortage over high-quality companies in this deep market, and we have been building a long list of candidates which fit our stock selection process to take advantage of further positive developments.

The post Strong showing from Flávio Bolsonaro in Brazil’s first round of presidential elections sends stocks flying appeared first on Groupe financier Connor, Clark & Lunn ltée.

Flávio Bolsonaro’s strong showing in the first round of Brazilian presidential elections on the 4^th of October was the catalyst for a sharp rally in the Ibovespa Index this month. In previous commentaries, we argued that the market trading at a price-to-earnings ratio of around 8x reflected political uncertainty. Further, we suggested the emergence of a credible conservative candidate to contest the elections would be fuel for outperformance relative to broader EM equities.

 
In our view, São Paolo governor Tarcísio de Freitas and Mission Party leader Renan Santos would have been the most credible right-wing contenders. We were wrong to discount the chances of a Flávio Bolsonaro candidacy, largely based on his connection to Daniel Vorcaro, who has been engulfed in a vast financial and political fraud case.

Senate swings to the right

Despite Flávio’s many glaring flaws as a candidate, he posted a stronger-than-expected showing in the first round of presidential elections taking 47.0% in the runoff against Lula’s 45.1%. Polls had understated Flávio’s performance by about 5pts.

In the second-round runoff with Lula, Flávio is the clear favourite. He needs only about half of the roughly 7.7% first round vote share that went to other, mostly right-leaning candidates. The first-round leader has won every runoff since 2002.

Arguably, the most important shift was in the 81-seat Senate where the number of seats held by the left-wing Social Democratic Party (PSD) collapsed from 14 to five, the right-wing Liberal Partyrose to 28 seats from 15, while a right-of-centre bloc controls 48 seats. So even if Lula were to win the presidency, he would face fierce opposition in the Senate.

Yields plummet and rate-sensitive stocks outperform

The Ibovespa soared by over 12% in USD terms the day after the election results were announced, with investors anticipating a more market-friendly administration. We currently hold a modest overweight to Brazilian equities and, over a period of months, have been tilting the risk budget within the allocation to more rate-sensitive names that would benefit from falling yields on the prospect of a return to a more conservative fiscal policy.

These stocks outperformed through the post-first-round period, bolstered by policy announcements from the Bolsonaro team which suggest they plan to hit the ground running should they take out the second round.

Economic advisor to Flávio Bolsonaro, Luiz Felipe Trevisan, posted a series of policy commitments with some set for immediate rollout (before inauguration via Congress):

• “Super PEC” fiscal package: Plan to leverage political momentum immediately post-election to pass a R$190–200B (~1.5% of GDP) spending cut before inauguration. Focuses on internal state efficiency (administration reform, cutting 10 ministries, fraud reduction, asset sales) without touching social benefits, pensions or immediate LCI/LCA tax incentives.
• Ending re-election as bargaining chip: Proposes abolishing presidential re-election to gain Congressional support for tough fiscal reforms, positioning this as a single-term legacy play to build a bridge for Tarcísio in 2030.
• Budget and institutional governance: Aims to reform expenditure rules so Congress and the Judiciary share accountability for the spending they create. Includes setting 15-year term limits and minimum qualifications for Supreme Court (STF) nominees.
• Pro-growth and capital markets: Targets boosting infrastructure investment to R$500B/year, maintaining full Central Bank independence, revoking ~1,000 regulations (“Economic Freedom 2.0”), and levelling tax treatment on corporate debt to attract foreign credit.

Since the 2000s mining boom the share of Brazilian equities has collapsed.

 
While EM valuations look attractive overall, Brazilian equities look especially cheap and poised to outperform on a better macro backdrop.

 
There is no shortage over high-quality companies in this deep market, and we have been building a long list of candidates which fit our stock selection process to take advantage of further positive developments.

The post Strong showing from Flávio Bolsonaro in Brazil’s first round of presidential elections sends stocks flying appeared first on Groupe financier Connor, Clark & Lunn ltée.

Chart 1

The projected decline was driven by weaker nominal money expansion, with CPI momentum little changed (though likely to rise in Q4).

The further fall in real money momentum, if confirmed, supports the forecast of a decline in global manufacturing PMI new orders through end-Q1 2027 (at least) – chart 2.

Chart 2

The mooted fall in the global measure reflects declines in China, Japan and India, with Brazil remaining weak – chart 3. The final September number will depend on US / Eurozone data released next week.

Chart 3

Global six-month industrial output growth may have recovered last month, based on solid US / Chinese data – chart 4. The shortfall of real money expansion versus output growth, therefore, may have widened sharply, suggesting an increased monetary headwind for markets.

Chart 4

The post Monetary news still weakening appeared first on Groupe financier Connor, Clark & Lunn ltée.

Chart 1

The projected decline was driven by weaker nominal money expansion, with CPI momentum little changed (though likely to rise in Q4).

The further fall in real money momentum, if confirmed, supports the forecast of a decline in global manufacturing PMI new orders through end-Q1 2027 (at least) – chart 2.

Chart 2

The mooted fall in the global measure reflects declines in China, Japan and India, with Brazil remaining weak – chart 3. The final September number will depend on US / Eurozone data released next week.

Chart 3

Global six-month industrial output growth may have recovered last month, based on solid US / Chinese data – chart 4. The shortfall of real money expansion versus output growth, therefore, may have widened sharply, suggesting an increased monetary headwind for markets.

Chart 4

The post Monetary news still weakening appeared first on Groupe financier Connor, Clark & Lunn ltée.

The basis for the calculations is a measure of the rental yield derived from the national accounts, by dividing aggregate rents (actual and imputed) by an estimate of the value of the housing stock*.

This yield bottomed at 4.0% at end-2022 and is projected to reach 5.2% by end-2026, based on H1 rental growth and an assumption of stable prices over the reminder of the year – see chart 1.

Chart 1

The yield, however, has averaged 6.0% over the last 36 years (representing two complete housing cycles). Based on current rents, prices would need to fall by a further 14% to achieve this level.

An assessment of fair value should also take into account yields / expected returns on competing investments. Index-linked gilts are a “risk-free” alternative, their coupons providing similar inflation protection to rents.

The premium of the rental yield over the yield on over-five-year index-linked gilts averaged 4.8 pp over the last 36 years, currently standing at 3.1% – chart 1. Closing the gap would require a 37% fall in house prices, based on current rents and assuming an unchanged real yield.

The comparison with index-linked offers a different interpretation of recent history. Rather than signalling house price overvaluation, the low level of the rental yield at end-2022 was consistent with still-negative index-linked yields – the rental yield premium was close to its long-term average.

The rise in the rental yield since then has lagged the increase in index-linked yields, resulting in the rental yield premium falling to its lowest level since 2007.

The suggestion, therefore, is that housing has become more expensive despite a rising absolute level of the rental yield, with the degree of overvaluation now comparable with the beginning of the crash phase of the last 18-year cycle.

*See footnote in previous post for more details.

The post UK house prices: (much) more downside appeared first on Groupe financier Connor, Clark & Lunn ltée.

The basis for the calculations is a measure of the rental yield derived from the national accounts, by dividing aggregate rents (actual and imputed) by an estimate of the value of the housing stock*.

This yield bottomed at 4.0% at end-2022 and is projected to reach 5.2% by end-2026, based on H1 rental growth and an assumption of stable prices over the reminder of the year – see chart 1.

Chart 1

The yield, however, has averaged 6.0% over the last 36 years (representing two complete housing cycles). Based on current rents, prices would need to fall by a further 14% to achieve this level.

An assessment of fair value should also take into account yields / expected returns on competing investments. Index-linked gilts are a “risk-free” alternative, their coupons providing similar inflation protection to rents.

The premium of the rental yield over the yield on over-five-year index-linked gilts averaged 4.8 pp over the last 36 years, currently standing at 3.1% – chart 1. Closing the gap would require a 37% fall in house prices, based on current rents and assuming an unchanged real yield.

The comparison with index-linked offers a different interpretation of recent history. Rather than signalling house price overvaluation, the low level of the rental yield at end-2022 was consistent with still-negative index-linked yields – the rental yield premium was close to its long-term average.

The rise in the rental yield since then has lagged the increase in index-linked yields, resulting in the rental yield premium falling to its lowest level since 2007.

The suggestion, therefore, is that housing has become more expensive despite a rising absolute level of the rental yield, with the degree of overvaluation now comparable with the beginning of the crash phase of the last 18-year cycle.

*See footnote in previous post for more details.

The post UK house prices: (much) more downside appeared first on Groupe financier Connor, Clark & Lunn ltée.

Since taking office in July, UK Prime Minister Andy Burnham has outlined a broad economic agenda focused on infrastructure investment, reindustrialization and regional development. While the government’s comprehensive 10-year plan is expected later this year, the 28 October Autumn Budget will provide the first meaningful indication of funding commitments and implementation timelines.

Among social care and pension reforms, much has been said about infrastructure and growth, with a 10-year plan for greater investment, reindustrialization and regional growth.

The Burnham government has outlined an ambitious multi-year infrastructure programme, anchored by the 10-Year Infrastructure Strategy published in June 2025 and the Spending Review covering 2026–2030. The 10-Year Infrastructure Strategy commits £725 billion in capital funding for economic and social infrastructure over the next decade. The UK Infrastructure Pipeline details more than 700 planned projects.

To gain exposure to UK infrastructure spend, Global Alpha recently initiated a position in Balfour Beatty PLC (BBY LN), an international infrastructure group operating across construction, engineering and asset management.

Balfour Beatty operates through three segments:

1. construction services – physical construction of assets including buildings, highways, rail and power generation,
2. support services – maintenance, refurbishment and upgrade of existing infrastructure, including power transmission and distribution, and
3. infrastructure investments – acquisition, operation and disposal of infrastructure assets.

Revenue is generated primarily through long-term public-sector framework contracts and project-based work, with revenue from the UK and North America evenly split, and a joint venture in Hong Kong contributing the remaining 9% of sales.

The company’s competitive advantages include its scale, technical expertise in complex infrastructure markets and a growing order book that provides multi-year revenue visibility. Importantly, its core end markets align closely with areas expected to receive the largest share of future infrastructure investment.

Energy and power transmission

In UK energy, Balfour Beatty has a 25% market share in the UK power transmission market. Ofgem, the UK’s regulatory body supervising the operation of the gas and electricity industry, has already announced an investment to upgrade power and gas grids that will increase to an estimated £90 billion by 2031. The approved investment will fund 80 transmission projects, such as new power lines, substations and other technologies, over that period. Balfour Beatty is also heavily involved in projects such as the new nuclear power stations at Hinkley Point C and Sizewell C, the Net Zero Teesside power station with carbon capture.

National security and defence

Regarding UK defence, Balfour Beatty has a strong track record and existing footprint in complex, high security and nuclear environments. The UK has committed to increasing defence spending to 3.5% of GDP by 2035 as part of the Defense Investment Plan. Defence is seen as a growth engine in the UK, turning national security into a direct driver of economic productivity. UK capability, security clearance and ringfenced IT systems will be prioritized, a positive for Balfour Beatty. The new CFO has extensive experience in the defence industry, having come from BAE Systems, the largest defence contractor in Europe.

Transportation

Investment in the UK transport network is an important component of the government’s growth plans and is essential to address aging infrastructure, net zero targets and domestic and international connectivity. Given Balfour Beatty’s capabilities in the construction and maintenance of road and rail, and its experience in delivering major airport projects, the company is well positioned to capitalize on transport opportunities when they arise, with growth expected in the medium term.

US data centre projects

Across the pond in US buildings, Balfour Beatty is well positioned in strong growth states and sectors. Balfour Beatty is targeting aviation and data centres, growing sectors which align with the company’s expertise. Aviation estimated to be a $140 billion construction market from 2026 to 2029. The company has a good track record, currently delivering a range of projects at seven airports. Data centres are estimated to be a $250 billion market over that period. Balfour Beatty has been active in data centre construction for around 20 years, delivering around 80 data centres in the Northwest region, and is leveraging existing relationships to expand its US footprint.

Risk, catalyst and the path ahead

Execution risk is always a concern with contractors, but the UK public infrastructure procurement environment has undergone significant transformation over the past decade, driven by a government focus on better delivery and stability. Structural improvements have led to a more balanced risk profile between customer and contractor: the adoption of collaborative cost models, prevalence of frameworks as a standard procurement route, early contractor involvement, and increased weighting of non-financial criteria in bidding.

The UK’s Autumn Budget represents the key near-term catalyst for the investment thesis. It should provide greater clarity on the government’s infrastructure spending commitments, funding mechanisms and implementation timetable. While fiscal constraints remain a risk, Balfour Beatty’s exposure to energy transmission, defence, transport and selected US growth markets positions the company to benefit if planned investment levels materialize.

The post Building momentum via a versatile investment appeared first on Groupe financier Connor, Clark & Lunn ltée.

Since taking office in July, UK Prime Minister Andy Burnham has outlined a broad economic agenda focused on infrastructure investment, reindustrialization and regional development. While the government’s comprehensive 10-year plan is expected later this year, the 28 October Autumn Budget will provide the first meaningful indication of funding commitments and implementation timelines.

Among social care and pension reforms, much has been said about infrastructure and growth, with a 10-year plan for greater investment, reindustrialization and regional growth.

The Burnham government has outlined an ambitious multi-year infrastructure programme, anchored by the 10-Year Infrastructure Strategy published in June 2025 and the Spending Review covering 2026–2030. The 10-Year Infrastructure Strategy commits £725 billion in capital funding for economic and social infrastructure over the next decade. The UK Infrastructure Pipeline details more than 700 planned projects.

To gain exposure to UK infrastructure spend, Global Alpha recently initiated a position in Balfour Beatty PLC (BBY LN), an international infrastructure group operating across construction, engineering and asset management.

Balfour Beatty operates through three segments:

1. construction services – physical construction of assets including buildings, highways, rail and power generation,
2. support services – maintenance, refurbishment and upgrade of existing infrastructure, including power transmission and distribution, and
3. infrastructure investments – acquisition, operation and disposal of infrastructure assets.

Revenue is generated primarily through long-term public-sector framework contracts and project-based work, with revenue from the UK and North America evenly split, and a joint venture in Hong Kong contributing the remaining 9% of sales.

The company’s competitive advantages include its scale, technical expertise in complex infrastructure markets and a growing order book that provides multi-year revenue visibility. Importantly, its core end markets align closely with areas expected to receive the largest share of future infrastructure investment.

Energy and power transmission

In UK energy, Balfour Beatty has a 25% market share in the UK power transmission market. Ofgem, the UK’s regulatory body supervising the operation of the gas and electricity industry, has already announced an investment to upgrade power and gas grids that will increase to an estimated £90 billion by 2031. The approved investment will fund 80 transmission projects, such as new power lines, substations and other technologies, over that period. Balfour Beatty is also heavily involved in projects such as the new nuclear power stations at Hinkley Point C and Sizewell C, the Net Zero Teesside power station with carbon capture.

National security and defence

Regarding UK defence, Balfour Beatty has a strong track record and existing footprint in complex, high security and nuclear environments. The UK has committed to increasing defence spending to 3.5% of GDP by 2035 as part of the Defense Investment Plan. Defence is seen as a growth engine in the UK, turning national security into a direct driver of economic productivity. UK capability, security clearance and ringfenced IT systems will be prioritized, a positive for Balfour Beatty. The new CFO has extensive experience in the defence industry, having come from BAE Systems, the largest defence contractor in Europe.

Transportation

Investment in the UK transport network is an important component of the government’s growth plans and is essential to address aging infrastructure, net zero targets and domestic and international connectivity. Given Balfour Beatty’s capabilities in the construction and maintenance of road and rail, and its experience in delivering major airport projects, the company is well positioned to capitalize on transport opportunities when they arise, with growth expected in the medium term.

US data centre projects

Across the pond in US buildings, Balfour Beatty is well positioned in strong growth states and sectors. Balfour Beatty is targeting aviation and data centres, growing sectors which align with the company’s expertise. Aviation estimated to be a $140 billion construction market from 2026 to 2029. The company has a good track record, currently delivering a range of projects at seven airports. Data centres are estimated to be a $250 billion market over that period. Balfour Beatty has been active in data centre construction for around 20 years, delivering around 80 data centres in the Northwest region, and is leveraging existing relationships to expand its US footprint.

Risk, catalyst and the path ahead

Execution risk is always a concern with contractors, but the UK public infrastructure procurement environment has undergone significant transformation over the past decade, driven by a government focus on better delivery and stability. Structural improvements have led to a more balanced risk profile between customer and contractor: the adoption of collaborative cost models, prevalence of frameworks as a standard procurement route, early contractor involvement, and increased weighting of non-financial criteria in bidding.

The UK’s Autumn Budget represents the key near-term catalyst for the investment thesis. It should provide greater clarity on the government’s infrastructure spending commitments, funding mechanisms and implementation timetable. While fiscal constraints remain a risk, Balfour Beatty’s exposure to energy transmission, defence, transport and selected US growth markets positions the company to benefit if planned investment levels materialize.

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