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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.

Emerging Market Infrastructure Set to Drive Demand for Commodities
October 4, 2010

Every week roughly 1 million people are born in or migrate to cities in emerging markets all over the world. By 2030, the global urban population is expected to grow by 1.6 billion people and account for 60 percent of all people on Earth, according to the United Nations.

With more people to feed, house, transport and keep warm, many emerging market metropolitan areas are buckling under the pressure. A month-long traffic jam near Beijing caught worldwide attention in August. According to Merrill Lynch, the daily commute for an average office worker in China is twice as long as it is in the U.S.

Over the last two weeks we have shared with you charts demonstrating the rising demand and prices for metals and oil due to the robust rising economic activity in emerging markets.  The visual below reflects the high correlation between oil demand and urbanization, which drives infrastructure spending. 

Barrels of Oil Per Day

India is struggling to fulfill the most basic needs of its population. Nearly 40 percent of India’s population doesn’t have access to electricity and almost 400,000 children die each year from waterborne diseases because they don’t have access to clean water.

Russia relies on Soviet-era roads and infrastructure to transport its natural resources to key export hubs. Many of these roadways haven’t been updated since the early 1980s. Russia’s roadways currently rank near the bottom for quality when compared to others around the globe.

Brazil may have the widest infrastructure gap of the BRICs. The country’s investment as a percentage of GDP has been declining since the 1970s and dropped to just over 2 percent in the 2000s—roughly the same amount as the U.S. The underinvestment shows; the country ranks in the bottom quartile globally for quality of roads, quality of ports and quality of airports.

In order to get back on the right track, substantial investment is needed in global infrastructure. Merrill Lynch forecasts that more than $6 trillion in investment is required over the next three years—80 percent being invested in the BRICs.  We believe commodity prices could exceed most analysts’ expectations.

$6 Trillion in Infrastructure over the Next Three Years

Of emerging market countries, China is far and away the big spender. This table shows the investment breakdown by category. You can see that more than 81 percent of the funds go toward three areas: Energy & Power, Transport & Logistics and Water & Environment.

The spending outlined above should be a huge demand driver for commodities such as oil, coal, iron ore and for materials such as steel and cement. Equipment and construction companies could also benefit. We believe it is similar to the California gold rush when the people who made the most money weren’t the prospectors but the suppliers who sold them their picks and shovels. Water-related, transportation and logistics companies may also turn out to be accessories to the boom.

Because of rapid urbanization, decades of underinvestment and strong fiscal balance sheets relative to the developed world, the stage is set for a massive global infrastructure build-out in the emerging world.

John Derrick, co-manager of the U.S. Global Investors infrastructure fund, the Global MegaTrends Fund (MEGAX) contributed to this commentary.

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.

BRIC refers to the emerging market countries Brazil, Russia, India and China. R-squared is a statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index. R-squared values range from 0 to 100. An R-squared of 100 means that all movements of a security are completely explained by movements in the index.

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Another Shot at Infrastructure
September 8, 2010

This week President Obama announced a $50 billion infrastructure plan to improve the nation’s roads, railways and runways over the next six years. The plan also lays out long-term plans for America’s infrastructure by developing an infrastructure bank, expanding environmental sustainability and integrating a high-speed program over the next generation.

Obama's Infrastructure Plan

The announcement couldn’t come at a better time. Data released last week shows that construction spending fell to a 10-year low in July and the country lost 54,000 jobs in August.

Infrastructure investment can improve both these figures. According to federal figures, every $1 billion invested in infrastructure can create about 35,000 jobs and fuel $6.2 billion in economic activity.

Another Shot at Infrastructure Image

When President Obama took office, one of his first promises was to put Americans to work by repairing crumbling infrastructure.

Roughly $230 billion worth of his economic stimulus plan was allocated to infrastructure, but only about $66 billion had been paid out by mid-August, according to The Wall Street Journal.

Where is the money going? California, hard hit by the recession, currently has 8,000 approved projects valued at $25 billion, while Texas has 3,000 projects ($14.6 billion) and New York has 3,500 projects ($12.7 billion). In all, there are nearly 80,000 infrastructure stimulus projects approved or under way across the U.S., according to Recovery.org.

Measuring the impact of another $50 billion will take some time as the President’s plan is intended to take six years. However, with our nation’s infrastructure investment needs estimated to be over $2 trillion, every little bit counts.

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India’s Achilles Heel
August 27, 2010

Achilles Heel IndiaPoor infrastructure continues to be an Achilles heel for India—if it were better, analysts say, the country could add 1-2 percentage points to its annual economic growth rate of around 8 percent.

India spends $17 per capita annually on infrastructure and capital investment—by comparison, China spends $116. With millions of people moving to India’s cities each year, McKinsey says the country will have to spend $1.2 trillion on infrastructure just to meet basic needs. This works out to $134 per person, or about eight times current levels.

The Delhi government has a plan to spend $500 billion on infrastructure by 2012 and twice that amount in the subsequent five years. But there’s a big difference between plans and execution—India is scheduled to host the Commonwealth Games in just a few weeks, but many of the venues are still not ready due to corruption and inefficiencies.

Eight miles of new roads are being built each day, but the official target is 12 miles per day. Desperate for more electricity, the Indian government turned to a failed Enron project that had been dormant for a decade.

One reason for lagging infrastructure is a lack of qualified engineers. A New York Times article this week said many of the best and brightest are going into the high-tech sector rather than the less glamorous (and less lucrative) world of roads and bridges.

Despite the challenges, Morgan Stanley analysts think India’s economy could begin growing faster than China’s as early as 2013. MS says this is because India’s ratio of working age population to dependents is improving while China’s is declining. Their government has been successful at creating jobs and the country has a strong footing in the lucrative global services export market.

But for India to overtake China’s growth pace, it’s vital that the country get better at executing on its ambitious infrastructure vision.

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Traffic Jam on the Superhighway
August 20, 2010

There’s growing congestion on one of America’s highways and reports say the problem will only get worse. In just the past few years, America’s technological network—our information superhighway—has gone from hare to tortoise. Dropped calls, Internet outages and surfing at a snail’s pace now seem to be commonplace.

One of the main causes of the congestion is the exponential growth of smartphones. Did you know that the new 4G iPhone uses the equivalent network capacity of 200 older generation cell phones?

Smartphone Ratio

Earlier this year when Apple sold 1.7 million of them in just three days, it was the data equivalent of dumping 340 million new cell phones into the system at once—no wonder there were problems. It isn’t Apple’s (or AT&T’s) fault so many people wanted their product, but it does highlight the investment opportunity.

According to tech research firm PacificCrest, the global technology buildout is a $200+ billion opportunity over the next five years. The infrastructure needs include $100 billion to relieve congestion and $50 billion for boosting networks by upgrading Internet protocols. PacificCrest also estimates $54 billion is needed for new routing systems to improve data flow.

PacificCrest says we’re entering the next phase of the Internet infrastructure build cycle as big firms boost their capital spending to alleviate bottlenecks and accommodate technological improvements.

During the last cycle (2004-2008) the top five Internet firms spent roughly $15 billion on infrastructure, but that figure is expected to jump to $28 billion over the next four years.

Internet Capex Spending

The infrastructure upgrades and additional networks are important because much of the world still isn’t connected. There are 183 billion emails sent each day, but 78 percent of the world’s population still doesn’t have email. There are roughly 6 billion devices (4.6 billion mobile phones, 1.2 billion computers) hooked up to the Internet today, but less than 10 percent of those have high-speed access.

As more people—especially in the developing world—join the broadband and mobile communities, immense strains will be placed on the global network over the next few years. There should be substantial opportunities to participate in this buildout along the way.

The following securities mentioned in the article were held by one or more of U.S. Global Investors family of funds as of 6/30/10:  Apple, AT&T

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World Spotlight on South Africa
June 14, 2010

South Africa takes to the world stage as it hosts soccer’s first World Cup to be played on the African continent. For the next 30 days, the eyes of the globe will be watching Rooney, Cristiano Ronaldo, Maicon and Messi battle it out for world soccer supremacy.

COMM WroldCupInfrastructure-THSouth Africa’s $287 billion economy is already the largest in Africa and it’s estimated that the World Cup will generate 400,000 jobs and contribute $7.3 billion to the country’s GDP, according to research firm Grant Thornton. It estimates 450,000 tourists will visit the country spending a total of $1.1 billion.

In preparation for this event, South Africa has given itself quite the makeover. This infographic from MENA Infrastructure details how South Africa has made substantial upgrades in its infrastructure.

A reported $2.2 billion was spent on 10 stadiums that will host the matches. Some of these, like the 46,000 seat Nelson Mandela Bay stadium in Port Elizabeth, the first stadium in the world to be completely powered by green energy, were new construction while others, like the 95,000 Soccer City stadium in Johannesburg, received major upgrades.

COMM - World Cup 061110Another $9.1 billion was invested in the country’s road systems, $2.4 billion in airports and $2 billion on a new commuter rail. In all, the World Cup infrastructure program is estimated to have brought $52 billion in investment.

Once the games are over, the South African government hopes the investment will continue to pay dividends. World Cup hosts have experienced increased economic growth in the two years following the event. Analysis from Credit Suisse shows the host countries experienced 2.7 percent and 2.6 percent growth, respectively, in the years leading up to the World Cup but saw 3.2 percent and 3.7 percent economic growth in the two years after.

Only time will tell if this scenario plays out. Luckily we have the world’s best tournament to keep us entertained in the meantime. Enjoy the Cup!

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Net Asset Value
as of 06/15/2018

Global Resources Fund PSPFX $5.83 -0.08 Gold and Precious Metals Fund USERX $7.61 -0.07 World Precious Minerals Fund UNWPX $3.89 -0.06 China Region Fund USCOX $11.80 -0.04 Emerging Europe Fund EUROX $6.72 -0.10 All American Equity Fund GBTFX $25.97 0.05 Holmes Macro Trends Fund MEGAX $20.22 No Change Near-Term Tax Free Fund NEARX $2.20 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change