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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.

World's Greatest Infrastructure Projects
June 10, 2011

Burj Khalifa in Dubai 061011Cities around the world take turns owning the title for the tallest skyscraper, the longest bridge or the deepest mine. Covering nearly every continent of the world, here’s our current list, which I’m sure will change over the next few years.

1. Tallest Skyscraper:
At a height of 2,700 feet, the Burj Khalifa in Dubai has 162 floors and was completed in 2010. If you’re looking for sheer quantity of skyscrapers, Hong Kong has the largest number of high-rise buildings in the world but Benidorm, Spain has the most high-rises per person.

2. Longest Train Track:
The network of rails called the Trans-Siberian Railroad in Russia is the longest train track in the world. The track connects Moscow to the far east of Russia and to the Sea of Japan. An important economic and military development, the railroad has been credited with the growth of several larger cities in Siberia.

3. Longest Railway Tunnel:
The Gothard Base Tunnel, located beneath the Swiss Alps, will soon be the longest railway tunnel in the world. Set to be completed in 2017, the $12 billion project will be longer than the undersea Seikan Tunnel in Japan. With a route length of 35.4 miles, the tunnel should boost trade and travel in Europe.

Arecibo Observatory in Puerto Rico 0610114. Largest Single-Dish Telescope:
The Arecibo Observatory in San Juan, Puerto Rico is the world’s largest single-dish radio telescope. You’ll probably recognize the telescope’s 1,000-foot-wide telescope from Hollywood appearances in both the James Bond movie “Golden Eye” and in “Contact” with actress Jodie Foster.

5. Highest Residential High-Rise Building:
The highest residential high-rise building is located in Gold Coast City, Australia. The Q1 Tower is both a resort facility and offers exclusive luxury apartments with a “stunning beachside location,” an observation deck 771 feet above the ground, and 360 degree views.

The $2 billion home of Mukesh Ambani6. World’s First Billion-Dollar Home:
A 27-story skyscraper in downtown Mumbai carrying a price tag near $2 billion is the world’s first billion-dollar home. The home is owned by India’s richest man, Mukesh Ambani, who runs petrochemical giant Reliance Industries.

7. Tallest Engineered Dam:
The Nurek Dam, located on the Vakhsh River in Tajikistan, is the tallest engineered dam in the world. The dam is an important source of electricity for the country.

8. Longest Cable-Stayed Bridge:
Spanning 8,146 meters above the Jiangsu Province in China, the Suzhou-Nantong Highway Bridge is the world’s longest cable-stayed bridge. The bridge has linked the two prosperous cities of Nantog and Suzhou, shortening the journey between the two from a four-hour ferry ride to just a one-hour drive across the bridge.

Suzhou-Nantong Highway Bridge in China 9. World’s Deepest Mine:
South Africa’s Mponeng mine is the world’s deepest, sending miners and equipment 2.4 miles underground in search of gold.

10. Busiest Airport in the World:
The busiest airport in the world is the Atlanta-Hartsfield Airport in the U.S. The Georgia airport saw 89 million passengers in 2010. It’s also notorious for lengthy delays.

None of U.S. Global Investors Funds held any of the securities mentioned in this article as of March 31, 2011.

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Railway Revolution Builds China's Consumer Culture
May 31, 2011

China Speeds Into the Future on High Speed RailsFrequent readers of my “Frank Talk” blog and the weekly Investor Alert should be familiar with the story of China’s high speed rails. We’ve previously discussed how China is building the world’s largest network of high speed rails at an incredible speed.

Since opening the first high speed line between Beijing and Tianjin in 2008, the country has laid down more than 4,600 miles of new tracks. This is three times more than Japan, where the bullet train was invented, and this is just the start. Once completed near the end of this decade, the high speed rail system will connect more than 250 Chinese cities, span 18,641 miles and reach roughly 700 million people.

Currently, the high speed rail network connects about one-third of China’s cities. That figure is set to nearly double over the next two years. If current forecasts hold true, 100 percent of the China’s cities will be connected through high speed rails by 2019.

High Speed Rail

While linking megacities such as Beijing and Shanghai carries significance, connecting the urban East with rural areas of West and Central China is equally as important. This data from Morgan Stanley shows that the West and Central regions of China lag considerably in terms of GDP per capita, urbanization rate and property prices.

West Central Regions

Many, including our investment team, believe that connecting these areas of the country could have a similar effect to what took place in the United States when Eisenhower’s interstate highway system linked cities such as Chicago and Philadelphia with their counterparts on the West Coast including Seattle and San Francisco.

The effect this massive buildout can have on commodities is evident: thousands of miles of new track, hundreds of new stations and dozens of new trains will certainly boost demand for steel. But there’s also a corollary effect that can expedite the transformation of China’s economy. More people traveling across the country means there will need to be more places for them to eat, sleep and shop.

Take hotel rooms for example. Currently, the U.S. has just fewer than 5 million hotel rooms spread across the country; China has about half that amount. However, Morgan Stanley forecasts that the two are set to switch places near 2025 as China pushes to offer more than 9 million hotel rooms by 2039. Familiar names such as Wyndham, Starwood and Hilton are planning major additions to their pipelines in China.

Millions of Rooms

Morgan Stanley also says that the high speed rail expansion presents opportunities in areas such as consumer staples, car rentals and tourism. The latter is especially important because the average Chinese citizen is going to be able to explore culturally rich areas of the country that were previously too difficult or expensive to visit. A poll from CLSA’s China Reality Research last year showed that travel remained a top aspiration.

Rail passenger traffic has a strong correlation with instant noodle consumption (79 percent positive correlation) and soft drink volume (86 positive correlation), according to Morgan Stanley. This means that chains such as McDonald’s (1,300 stores in China) and KFC (4,000 stores in China), both of which are largely concentrated in the eastern third of the country, will likely follow the high speed tracks into Central and Western China.

These are all examples of how the dynamics of the Chinese consumer are forever changing. As investors, it’s important to understand these intermarket relationships and how a development in one area of an economy can dramatically affect another seemingly unrelated area of the economy. Being able to spot these trends and developments before they bubble up to the surface is how active money managers can create alpha for their shareholders.

Alpha is a measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha.

None of U.S. Global Investors Funds held any of the securities mentioned in this article as of 3/31/2011.

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Global Infrastructure a $6 Trillion Opportunity
May 27, 2011

A few weeks back we highlighted the strong link between GDP growth and oil consumption by showing you how oil consumption per capita has risen in selected countries as per capita incomes rise (Each week, more than one million people are either born in or migrate to cities around the world. Much of this rapid urbanization comes from the emerging world, putting tremendous pressure on that country’s feeble infrastructure. Pipes burst, roads are jammed, the water is tainted and the lights even go out.

Emerging Markets to Invest $6 Trillion Over Three Years 052711Merrill Lynch estimates that $6 trillion will need to be spent by selected emerging market countries over the next three years to meet the basic needs of these citizens. Water, transportation and energy investments will consume the bulk of these funds, accounting for 82 percent of total projected spending. Nearly every emerging market country Merrill researched will make an investment in all three.

While each developing country could benefit from an upgrade, needs vary. This table details how different emerging market countries stand up against each other in terms of quality for the country’s roads, rails, ports, etc. We’ve highlighted the specific areas where the countries rank in the bottom half among the 133 surveyed by the World Bank.

Percentile Ranking of Infrastructure Assets Out of 133 Countries
  U.S. Germany Brazil Mexico China India Russia South Africa Turkey
Quality of overall infrastructure 89% 95% 26% 43% 56% 32% 41% 65% 47%
Quality of roads 92% 96% 17% 50% 62% 35% 22% 70% 59%
Quality of railroad infrastructure 87% 96% 35% 46% 79% 84% 76% 72% 48%
Quality of port infrastructure 90% 96% 8% 29% 59% 30% 43% 63% 34%
Quality of air transport infrastructure 85% 97% 24% 58% 44% 50% 34% 81% 59%
Quality of electricity supply 87% 95% 56% 35% 49% 19% 51% 24% 37%
Telephone lines 89% 98% 53% 49% 65% 20% 71% 32% 60%
OVERALL 94% 99% 41% 49% 65% 46% 56% 64% 50%
100% is best, 1% is worst
Source:World Economic Forum, BofA Merrill Lynch Global Research

You can see that Brazil has the worst overall ranking among the countries listed. Though the country is a large exporter, the extremely poor condition of the country’s roads and rails has hampered the growth of internal textile and farming industries. However, there is light at the end of the tunnel for the country, as the government already has a plan in place to improve these conditions (Read: Brazil’s Infrastructure Plays Catch Up).

India’s infrastructure also rates poorly, and is slowing the country’s ascent to top of the world’s economies (Read: India’s Achilles Heel). One of India’s key issues is electricity. Merrill says that nearly 40 percent of Indian households do not have access to electricity, the worst of any major developing economy.

Power is also a problem in South Africa where a major power plant has not been built in 20 years and blackouts/power outages have hurt the country’s mining industry in recent years. Merrill projects $54 billion will need to be spent on the country’s power system over the next three years, accounting for nearly half total infrastructure spending.

China, which accounts for more than half of that $6 trillion estimate, ranks far above emerging peers in terms of infrastructure at the 65th percentile. Merrill says that one of China’s biggest needs is in water and environmental development. The firm estimates that the Asian country will need to build roughly 40,000 reservoirs at Rmb 12.5 million a piece to create an internal water distribution system and alleviate pressure when regions experience extended droughts such as what China is seeing presently.

The needs of a growing global population set to reach 7 billion later this year and investment needed to supply these people with sufficient water, roads, housing and power is why we identified infrastructure as a megatrend in 2007 and made it the key investment theme of the Global MegaTrends Fund (MEGAX).

Although some infrastructure investments, such as those in Russia, have seen delays as fiscal dollars have been diverted during the financial crisis, we continue to believe in the long-term viability of the story.

Read How Policy Reforms are Paving the Way for Indonesia

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.

"http://www.usfunds.com/investor-library/frank-talk/Energy-Natural-Resources/The-Strong-Link-Between-GDP-and-Oil-Consumption-5331/">Read: The Strong Link Between GDP and Oil Consumption).

 

Specifically, we noted the potential for China’s oil consumption—already the second-largest oil consumer in the world—to catch up on a per capita basis with other Asian countries such as Taiwan and South Korea.

That’s where we think China’s oil consumption is headed, but this chart from Carnegie shows how strong oil consumption per capita growth has been over the past 50 years. Back in the days of Chairman Mao, China’s oil consumption per capita was roughly 0.2 barrels per year (b/y). When Deng Xiaoping took over in 1982, that figure had grown to roughly 0.6 b/y.

China's Oil Consumption Increases While the U.S. Declines 052511

Since then, there’s been no looking back. China’s oil consumption per capita has increased over 350 percent since the early 1980s to an estimated 2.7 b/y in 2011. In fact, consumption per capita has risen nearly 100 percent in just the past decade.

Oil consumption per capita in the U.S. currently ranks among the top industrialized nations in the world at 25 b/y. However, today’s consumption levels are approximately 20 percent lower than they were in 1979.

China isn’t the only emerging country to show big increases in per capita consumption; in fact, the growth in consumption for several other countries far outpaces China. You can see from this next chart from Carnegie that consumption per capita in Malaysia has nearly quadrupled since the mid-1960s. Consumption in Thailand and Brazil has more than doubled to roughly 5.7 b/y and 4.8 b/y, respectively.

Meanwhile, many developed countries—especially those in Western Europe, have experienced substantial declines.

Rising Oil Consumption in the Emerging World 052511

Today’s per capita consumption in Sweden is roughly 12 b/y, down from 25 b/y in the mid-1970s. That’s one of the largest declines in the developed world over that time but isn’t the only one. France, Japan, Norway and U.K. all use less oil on a per capita basis than they did in the 1970s.

This trend is why we feel emerging countries, especially Asia, are the epicenter of oil demand growth for years to come.

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The Dollar and Oil Debate on CNBC Europe
May 20, 2011

Frank on CNBC - CommoditiesWhile I was in London earlier this week, I joined CNBC Europe’s Commodities Corner to discuss an earlier post regarding my Three Reasons to Believe in $100 Oil.

Of the three reasons I gave, most striking to this group was my belief that higher oil prices will continue because of a weakness in the dollar. What I explained during the discussion was that a falling dollar causes short-term volatility. As the demand for a particular type of commodity increases and the dollar weakens, or vice versa, investors need to deal with an exaggerated movement in the price of commodities. However, I stressed the short-term nature of these events.

More importantly to the long-term investor, I asserted there should be two main focuses over the next 10 years. One is the supply and demand factors driven by infrastructure needs, not only from China, but also many other emerging markets.

For example, investors should compare the economic situation of the E7 – Brazil, China, India, Indonesia, Mexico, Pakistan and Russia – which are the most populated countries against the G7 which are Canada, France, Germany, Italy, Japan, the U.S. and the U.K. While the money supply growth rate of the G7 countries is less than 4 percent, the rate of the E7 group is at 18 percent. To me this means, over the next five years, asset prices should double.

The second important long-term focus is on government policies for infrastructure spending. One noteworthy example I like to use is the expanding infrastructure projects including high-speed rail in China to connect 250 cities and 700 million people. This is a significant driver for commodity prices.

Watch Frank on CNBC

The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar. M2 Money Supply is a broad measure of money supply that includes M1 in addition to all time-related deposits, savings deposits, and non-institutional money-market funds.

The following security mentioned in the article was held by one or more of U.S. Global Investors family of funds as of March 31, 2011: Kinross Gold.

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Policy Reforms Pave Way for Indonesia
May 12, 2011

Known as the world’s largest archipelago, Indonesia is made of 17,000 islands—eight major ones—between the Indian and Pacific Oceans with the most volcanoes in the world. Almost half of the country’s population lives in an urban environment. Jakarta, the capital and largest city, is home to more than 9 million people. Literacy in Indonesia is high: 90 percent of the population aged 15 and over can read and write.

Map of Indonesia

Yet this highly literate country lags nearby southeastern Asian countries when it comes to infrastructure, according to a recent report by Morgan Stanley.

  • Less than 10 percent of the population has access to the Internet compared to 25 percent of people in nearby countries of Thailand and Vietnam.
  • About 40 percent of the roads are unpaved in Indonesia, whereas Singapore and Thailand have nearly 100 percent of the country’s roads paved.
  • A third of Indonesia’s population has no electricity, while Malaysia, the Philippines, Thailand and Vietnam all have electrification rates close to 100 percent.

This should improve soon. As I often say, government policy is a precursor to change and recent major policy reforms, along with an attractive cost of capital and access to funding, are now paving the way for Indonesia to commit dollars to their sorely needed roads, railways, airports, electricity and telecom projects.

Indonesia InfrastructureBy Morgan Stanley’s estimation, Indonesia will spend approximately $250 billion over the next five years on infrastructure alone.One third of this amount – $85 billion – is estimated to be spent on electricity, 27 percent will go toward roads, and 21 percent on telecom. This investment in infrastructure should help to push the southeastern Asia country’s GDP growth to more than 7 percent a year by 2015.

Multiple resource companies should be benefactors from this infrastructure spending – 50 percent of all the projects are cement-intensive, to give one example – and that’s why we plan on keeping an eye out for opportunities for the China Region Fund (USCOX).

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.

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Net Asset Value
as of 09/25/2017

Global Resources Fund PSPFX $5.78 -0.04 Gold and Precious Metals Fund USERX $8.02 0.06 World Precious Minerals Fund UNWPX $6.69 0.06 China Region Fund USCOX $10.96 -0.46 Emerging Europe Fund EUROX $6.94 -0.06 All American Equity Fund GBTFX $24.34 0.10 Holmes Macro Trends Fund MEGAX $19.99 0.03 Near-Term Tax Free Fund NEARX $2.23 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change