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Please note: The Frank Talk articles listed below contain historical material. The data provided was current at the time of publication. For current information regarding any of the funds mentioned in these presentations, please visit the appropriate fund performance page.

The Secret Ingredient to an Indian Wedding
October 17, 2013

Shareholder Report 2013 Volume 3Something old, something new, something borrowed, something blue. Perhaps you’ve heard this old English saying about what items a bride must wear to have good luck on her wedding day. For brides in India however, not a single thing on that list would ensure a spectacular day. Instead an Indian bride desires one thing—gold.

At U.S. Global Investors we often reference the Love Trade and the Fear Trade when discussing gold. What’s important here is the Love Trade, characterized by the purchase of gold for festivals and holidays, and in the case of India, for weddings. Indians love gold, evident in the demand of the precious metal during wedding season. In fact, about half of the gold that Indians buy each year is for weddings.

As you’ll find out in our latest Shareholder Report, a luxury good such as gold is not uncommon to be gifted at Indian weddings, even with the recent regulations to slow imports of the valuable metal into the country. According to a recent story on Mineweb, India’s lust for gold simply cannot be dimmed by government clampdowns. “Heavy gold jewelry pieces from Italy, Switzerland, Dubai and Thailand have flooded the market, just in time for the festive season,” says Mineweb.

We believe the appeal for gold will continue to hold strong in the country. The Shareholder Report gives an in-depth look at Indian gold buying and explores other traditional gifts given at an Indian wedding.

Explore the full report here

 

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link above, you will be directed to a third-party website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for their content.

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How to Profit from a Changing China
September 30, 2013

“If you ask me, China’s economy hasn’t finished impressing the world with its strength.”

— Jim O’Neill

More than a decade ago, the acronym, BRIC was coined. Most investors know the countries it stands for, but few remember the name or background of the man who came up with the term.

It was back in 2001 when Jim O’Neill, formerly of Goldman Sachs, grouped Brazil, Russia, India and China to represent the economic shift away from developed countries toward emerging nations. According to a 2010 story in the Financial Times, he came up with the bold prediction that “by 2041 (later revised to 2039, then 2032) the BRICs would overtake the six largest western economies in terms of economic might.”

For China, it was an incredible call. Back in 2001, China’s share of world GDP growth was only about 11 percent. Now, it’s almost double that. As O’Neill points out, China’s economy is three times France’s and bigger than Brazil, Russia and India combined.

China Share World GDP Growth
click to enlarge

You’d have to rewind the clock another seven years to when I first began hunting around China for companies to invest in. At that time, the Asian country made up only a fraction of global growth.

Today, while the economies of Brazil, Russia and India may be disappointing to O’Neill, he remains staunchly bullish toward China. In a recent article on Bloomberg View, he put the Asian nation into perspective for perma-bears who believe that while China averted a crisis today, the country might not succeed next year. He writes:

“It isn’t clear to me why China’s economy must deteriorate next year. China’s slowdown to its current 7.5 percent growth rate was well signposted by a sharp slowdown in leading indicators. Those measures, including monetary growth and electricity usage, are no longer flashing red.”

Like we’ve recently published, China’s purchasing manager’s index is improving. Consumption measures such as retail sales have held up, and the current account surplus is down to about 3 percent of GDP, says O’Neill.

The three major indicators used by Chinese Premier Li Keqiang are also up. In August, on a year-over-year basis, power production increased 13.4 percent, which is the fastest rate of growth since June 2011. Rail freight volume is also up, rising 7.9 percent, the highest since September 2011. Bank loans outstanding climbed 14.1 percent. While bank loans are currently trending down, they are stabilizing.

Taking the weighted average of the year-over-year growth of 40 percent power generation, 35 percent total loans outstanding, and 25 percent rail freight volume, the “Keqiang Index” showed an increase of 12.3 percent. This is the fastest since September 2011 and solidly above the three-month average.

Keqiang Index Solidly Above 3 Month Moving Average
click to enlarge

To us, the index is a very telling indicator, as the premier looks at railroad activity, energy consumption and the health of the banking sector to get a gauge on Chinese growth. Basically, he’s paying attention to the biggest catalysts for creating jobs. It offers rare insights to what the premier will tolerate in terms of upper and lower limits for government policy intervention.

Portfolio Manager Michael Ding was at the CLSA Forum in Hong Kong and had a chance to listen to China Macro Strategist Andy Rothman, who provides one of the most balanced perspectives on the country. Andy has a local perspective, collecting numerous data on China, so he’s able to separate the sensational doomsday stories from reality.

Andy says it is normal for the country to grow slower. His tone was similar to O’Neill’s, in that the slowdown does not mean a crisis. He says that even if China’s growth does slow, the absolute amount of growth is much more than in the past due to the higher base, which means investors should not be too bearish on China’s demand for many products and materials.

Keep in mind that China is in the process of rebalancing its economy, moving from a reliance on exports to greater consumption and services. That’s why the focus in November will be to reform the hukou system, which was the primary means for controlling migration throughout the country. Chinese leaders will also be looking at fiscal reforms, a modest financial sector reform, environmental protection, and the one-child policy.

This rebalancing means that the “winning investments will be quite different than before,” says O’Neill.

We believe this is positive for investors who selectively invest in Chinese stocks. As O’Neill puts it, “When a country is embarking on a significant compositional change to its economy, stock-pickers rather than index-trackers have the upper hand.”

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

By clicking the link above, you will be directed to a third-party website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content.

The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. The Shanghai Stock Exchange Composite Index is a capitalization-weighted index that tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange. The Shenzhen Composite Index is an actual market-cap weighted index (no free float factor) that tracks the stock performance of all the A-share and B-share lists on Shenzhen Stock Exchange.

The following securities mentioned in the article were held by one or more of U.S. Global Investors Funds as of 6/30/13: Apple

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Keeping a Nuanced View of Emerging Markets
September 18, 2013

When it comes to emerging markets, director of research John Derrick has become the “go-to” guy for VoiceAmerica’s “Emerging and Frontier Markets Investing with Gavin Graham.” Over the past couple of weeks, here are a few of the most important topics that John discussed with host Gavin Graham:

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Q. As the turmoil in Syria erupted, has there been much impact in emerging markets?

A. I think the biggest impact has been on Russia with higher oil prices. Russia is the biggest beneficiary, at least in the Eastern European and emerging region, and that is due to these higher oil prices along with the knock-on effect it has had throughout the economic unrest in the Middle East.

There is also another big opportunity for Russia as we talk about energy going forward. You’re seeing LNG projects moving forward and you’re seeing pipeline projects moving forward in China as well. Those are big, important steps for Russia to diversify its revenue base.

Director of Research John Derrick was able to see the resiliency of Eastern Europe first hand when he traveled to Prague, Budapest and Krakow to meet with executives.Q. There is news that Western Europe has finally emerged from recession. Has this also happened to markets in Eastern European economies and other emerging and frontier markets?

A. We now have positive growth out of the eurozone. Indicators out of Germany have been better, industrial production has been better and sentiment indicators have also definitely improved. I think a lot of these things take time, but a lot of people are starting to come around to the European-recovery story. And for the region, I think this economic uptick has trickled down to everyone.

The improvement in Europe is broadly positive for emerging markets. If you look at historical relationships between European economic activity, you will see a tighter correlation with emerging market economic activity than you will with that of the U.S. If we can get Europe growing again, that will be a positive dynamic for emerging markets. That helps China for one, which in turn helps a slew of other countries.

Q. Often when we look at emerging and frontier countries, they look like great investment destinations that we want to be in now. Is it possible though, that one of the downsides to an increased interest in emerging and frontier markets is the large number of growth estimates out there, especially with a pretty wide range in some cases?

A. As far as economic forecasts go, there can definitely be wide ranges. We try to focus on what is a likely sustainable trend and whether you have government policies that are going to be supportive of that trend. A good example is China because I know there are a lot of questions about the validity and accuracy of some of its numbers. You need to dig a little deeper than GDP, and really try to verify activity levels.

You need to look at whether government policies are supportive of whatever the estimates are. China is expected to grow 7 or 7.5 percent this year, but it is fairly restrictive on the monetary front and even on the fiscal front as well. There is always risk that it may not actually reach those targets. It’s a nuance type of view that you have to take with a lot of these countries.

Every week, Gavin brings together experienced money managers, journalists and analysts to discuss global events, pinpointing opportunities in the market and expanding investors’ knowledge. If you haven’t had the chance to tune in, the full-length version of all the programs can be found on VoiceAmerica’s website.

Don’t miss these related Frank Talk posts.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link above, you will be directed to a third-party website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content.

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Why It’s Hard to Ignore Russia
September 16, 2013

Tim Steinle at a pumping station in VyborgRussian President Vladimir Putin created a stir recently when he shared his thoughts with Americans in an op-ed printed in The New York Times. According to The Times, very few pieces written by heads of state have been published by the paper and very few received the attention Putin attracted.

But will the plea be influential? Will it change President Barack Obama’s or Americans’ opinion on the matter of Syria?

In recent years, Russia’s political stability and rule of law have been called into question, causing many investors to avoid the area. Yet, while Russia is a tough market to love and even easier to hate, the country is hard to ignore, says Tim Steinle, portfolio manager of the Emerging Europe Fund (EUROX).

While I was at Cambridge House’s Toronto Resource Investment Conference talking to investors about gold and resources, Tim was in San Antonio, Texas discussing his perspective on Russia on Canadian Business News Network with host Howard Green, Richard Jenkins from Black Creek Investment Management and John Hsu from John Hsu Capital Group. It was an insightful debate on finding opportunities in the sometimes challenging emerging countries of Russia, China and the Middle East.

Here is a summary of Tim’s perspective on the emerging Europe giant.

Q. A lot of big, sophisticated, institutional investors say it’s not worth the trouble to put your money in Russia. What do you say to them?

Since the Federal Reserve suggested ending its bond purchases, many emerging markets have suffered. Year-to-date through September 12, the MSCI Emerging Markets Index lost about 8.5 percent. Over the same time frame, Russian stocks have declined less than that, about 4 percent.

The Russian ruble also fared relatively well against emerging market currencies, as the country does not depend on external funding. Since the beginning of 2013 through today, the South African rand declined more than 14 percent, the Indian rupee lost 13 percent and the Brazilian real is down 10 percent. Comparably speaking, the Russian ruble looks stable.

Russian Ruble Fared Well Against Other Emerging Market Currencies
click to enlarge

Additionally, over the last 60 days, Brent crude oil increased about 15 percent, and a major oil-producing country such as Russia benefits from higher oil prices.

For these reasons, we believe people are taking another look at Russia.

Q: Novatek, an independent gas producer in Russia, is close to breaking the Gazprom monopoly on the gas export market. Will Gazprom fight that?  

Surprisingly, it hasn’t yet. What’s interesting is that the Russian MICEX Index is heavily populated by oil names, but these companies tend to carry a very heavy tax burden. They are basically all running to stand still, drilling to replace the decline from existing wells while net production remains flat.

The gas market is a different animal. Novatek is Russia’s largest independent gas producer and “one of the best-run global emerging market oil and gas companies,” says UBS. The company has grown its domestic market share in leaps and bounds to the tune of about 20 percent per annum. It has developed smaller fields where Gazprom has not been successful. In the last three years, Novatek doubled reserves and some of those fields were formerly Gazprom fields.

In addition, Novatek is venturing into an inherently profitable LNG project with China located on the Yamal peninsula. According to UBS, the Yamal project might be able to “unlock significant long-term production upside for Novatek, partially liberating it from its dependence on Gazprom’s pipeline network.”

The media has been focusing on China’s deals on an inland pipeline in Siberia with Gazprom, yet there’s a huge discrepancy in price. China wants to pay only $3 per million British Thermal Units (mBtu), but Russians want to charge $12 per mBtu.

While the Chinese want a stake in both areas, as well as some flexibility, Novatek is a clear winner so far. For the first time in Russian history, the Gazprom monopoly will be broken. This is a big deal for an independent company, as it allows Novatek to become “an energy player of genuine global standing,” says UBS.

Q. So, if you put your money in Russia, what about political stability?

A key to investing in Russia is to focus on domestic areas of the market that are profitable and growing. While China’s urbanization gets a lot of attention today, in the case of the Soviet Union, urbanization happened back in the thirties. Russia has a middle class and its GDP per capita is much higher than that in China.

Within domestic markets, one promising company is Mobile TeleSystems, which provides mobile and fixed line voice and data telecommunications services for Russian customers. So far this year, the stock has climbed 16 percent.

Russian internet companies, such as Yandex and Mail.Ru, have also done spectacularly well in 2013, significantly outperforming the overall Russian Index. While overall Russian stocks are down, Yandex, the “Google of Russia,” rose about 60 percent and Mail.Ru increased 20 percent.

Domestic Stocks Yandex MailRU Outperformed Russian Index
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Search engine company Yandex has seen success lately, as it’s been able to defend its 60 percent market share against Google, a fierce global competitor. And Mail.Ru, which is a Russian Internet company focused on social networks and gaming, currently captures about 96 percent of Russian Internet users on a monthly basis, and 74 percent on a daily basis, according to JP Morgan.

In addition, Mail.Ru may likely pay a 10 percent dividend on the proceeds of the Facebook sale, which it had successfully invested in prior to the IPO.

It’s a longer interview, but worth checking out. See the video clip now and then take a closer look at the Russian stocks in the Emerging Europe Fund (EUROX).

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio. The Emerging Europe Fund invests more than 25 percent of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The MICEX Index is the real-time cap-weighted Russian composite index. It comprises 30 most liquid stocks of Russian largest and most developed companies from 10 main economy sectors. The MICEX Index was launched on September 22, 1997, base value 100. The MICEX Index is calculated and disseminated by the MICEX Stock Exchange, the main Russian stock exchange. The Russian Trading Systems Index is a capitalization-weighted index that is calculated in USD. The index is comprised of stocks traded on the Russian Trading System.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Holdings in the Emerging Europe Fund as a percentage of net assets as of 6/30/13: Facebook Inc., 0.00%; Gazprom, 3.06%; Google Inc., 0.00%; Mail.Ru Group Ltd., 2.19%, Mobile TeleSystems, 5.74%; NovaTek, 3.51%; Yandex, 3.50%.

Past performance does not guarantee future results.

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Start Bargain Hunting in Asian Stocks … Again?
September 12, 2013

If you compare the Asian stock market these days to prior years, it’s looking like “déjà vu” all over again, says Credit Suisse.

In one of its latest reports, Credit Suisse’s Asia Pacific Equity Research team compared this year’s daily price data of the MSCI All Country Asia ex-Japan Index to that from 2010 and 2012. What’s the common thread among these three years? Momentum of global growth bottomed each summer.

You can see below how today’s market is following a similar trend, hitting a low in the summer months. Yet, in 2010 and 2012, Asian stocks climbed significantly in the second half of the year.

Asian Stock Market Following Same Course as 2010 and 2012
click to enlarge

Could we see a rally this year? Chances are good, but keep in mind that the key difference in 2013 is the Federal Reserve’s talk of easing its monetary program, says Credit Suisse.

Looking at the data from the second half of 2010 and the second half of 2012, the firm finds the most promising areas were Asian cyclical stocks, which includes companies in the technology, consumer discretionary, energy, materials and industrials sectors, as well as companies in China and Korea.

Back in 2012, I highlighted research that showed how Chinese stocks were looking inexpensive compared to other emerging markets. I said that the negativity pendulum had swung too far and the market was due for a rally.

The rally was significant: From the beginning of June through the market peak in February 2013, the MSCI China Index rose about 27 percent.

Today, it looks like China is once more the place to dig for bargains. Among Asian equities, China and Korea are “still the two most undervalued markets in the region,” says Credit Suisse.

Here’s how the China Region Fund is poised to participate in this potential rally.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Past performance does not guarantee future results.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.

The MSCI China Free Index is a capitalization weighted index that monitors the performance of stocks from the country of China. The MSCI Asia ex-Japan Index is a free float-adjusted, capitalization-weighted index measuring the performance of all stock markets of China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand, India and Pakistan.

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Net Asset Value
as of 11/24/2017

Global Resources Fund PSPFX $6.07 0.10 Gold and Precious Metals Fund USERX $7.39 0.03 World Precious Minerals Fund UNWPX $5.78 0.02 China Region Fund USCOX $11.95 -0.23 Emerging Europe Fund EUROX $7.07 -0.02 All American Equity Fund GBTFX $24.08 0.02 Holmes Macro Trends Fund MEGAX $21.36 No Change Near-Term Tax Free Fund NEARX $2.21 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change