U.S. Global Investors• EM countries are trading more with each other: intra-EM exports have risen...
Transcript of U.S. Global Investors• EM countries are trading more with each other: intra-EM exports have risen...
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On the Ground in Emerging Markets: Our First-Hand Look at Opportunities
www.usfunds.com
U.S. Global InvestorsSearching for Opportunities, Managing Risk
November 200808-804
Frank E. HolmesCEO and Chief Investment Officer
John Derrick, CFADirector of Research
Jack DzierwaGlobal Strategist
Tim Steinle, CFAPortfolio Manager
Romeo Dator, CFAPortfolio Manager
Cambodia
On the Ground in Emerging Markets: Our First-Hand Look at Opportunities
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Fund Recognition
Winner of 26 Lipper Fund Awards and certificates since 2000
Investment leadership results
in performance
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Today’s Presenters
Frank Holmes John Derrick Jack Dzierwa Tim Steinle Romeo Dator
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We Cannot Direct the Wind…
…But We Can Adjust the Sails
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*SWOT analysis (Strength, Weakness, Opportunity, Threat). Alpha is a measure of the difference between a fund’s actual returns and its expected performance, given its level of risk as measured by beta.
Multidisciplinary Focus
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Cycles – Where are we on the…
Kuznets Cycle – 20-year Emerging Market Cycle That Drives Commodity Demand
Presidential Election Cycle – 4-Year Cycle
Seasonal Cycle – Commodity and Stock Market Patterns
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Presidential Election Cycle—The Black Swan
Source: Bloomberg
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Oil Seasonality Annual Cycle
Source: Moore Research Center, Inc.
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Convergence and Unexpected Consequences
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Deleveraging Impact on EM Currencies
The stronger U.S. dollar has had a major impact on EM currencies in the last 6 to 8 weeks, particularly those with large current account deficits and gross external debt.
Source: FactSet, Morgan Stanley Research
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U.S. Dollar
Source: Bloomberg, U.S. Global Research
DerivativesCrisisAsian crisis
Russian Crisis & LT Capital
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MSCI Asia Pacific Ex Japan
Source: Bloomberg, U.S. Global Research
Asian crisis Russian Crisis& LT Capital
Derivatives Crisis
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Emerging Market Equity Flows
Source: Emerging Portfolio Fund Research. Both US and non-US domiciled funds. All Dedicated EM: GEM, Asia ex JP, LatAm, EMEA. Data as of Oct 15th
Average down and consider being a contrarian
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Crude Oil
Source: Bloomberg, U.S. Global Research
Asian crisis
Russian Crisis & LT Capital
Derivatives Crisis
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Gold
Source: Bloomberg, U.S. Global Research
Asian crisis Russian Crisis& LT Capital Derivatives Crisis
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S&P 500 Year-Over-Year Change and Rotation
Source: Bloomberg, U.S. Global Research
Asian crisis
Russian Crisis& LT Capital
Derivatives Crisis
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S&P 500 60-Day Change Rotation
Source: Bloomberg, U.S. Global Research
Asian crisis
Russian Crisis& LT Capital Derivatives
Crisis
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Government Policy Model —Precursor for Change
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G7 Countries
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E7 Countries
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Monetary Policy
Source: Bloomberg
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Oil Consumption
Source: BP, BCA Research
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Oil Price Cost Curve
Source: Credit Suisse
Marginal Cost $70
Cash Cost $40
ROCE=Return on Capital Employed
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Oil vs E7 Money Supply Growth
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Copper vs E7 Money Supply Growth
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Mexico’s Oil Production Decline
Source: UBS, Pemex
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Total Exports to U.S. as Share of GDP, %
Source: Haver Analytics, Morgan Stanley Research. Last 12 months as of Aug, 2008.
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EM Countries — Share of Total Exports, %
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Export Growth – Aggregate For Top MSCI EM Countries
Source: Haver Analytics, Morgan Stanley Research. Includes: Korea, Taiwan, China, Brazil, Russia, South Africa, India, Mexico, Malaysia, Israel, Poland, Turkey, Chile, Indonesia, Thailand. Data as of Aug, 2008.
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Diversification In Exports; Combined Weakness In U.S. and EU Challenges EM Growth
Source: Morgan Stanley Research
• EM countries are trading more with each other: intra-EM exports have risen from 37% to 48% since 2000.
• Exports to the U.S. are now just 18% of the total. Trade diversification leaves EM well placed to withstand a further slowdown in U.S. growth, but not U.S. and EU combined.
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Russia Correlations with Dollar and Oil
Source: Bloomberg, U.S. Global Research
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Russia’s Oil Output Growth Declines
Source: UBS, Reuters
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Mismatch Between Oil Reserves and Economic Systems (Proven Reserves vs. Level of Access)
Source: PIRA
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GDP Per Capita Growth Rates Needed to Reach US$6,600
CAGR=Compounded Annual Growth Rate
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GDP Per Capita Growth Trajectories
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MSCI EM-Index Target Scenarios, US$ Return
Source: Morgan Stanley Research, Global Emerging Markets Equity Strategy estimates
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Key Long Run Drivers of EM GDP Growth Are Likely Intact
Source: Morgan Stanley Research
• Adoption of market economy & modern technology• Urbanization / low household leverage• High savings and investment• Improved government fiscal positions• Reduced reliance on exports to DM• Transition to EM led global economy
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Where We Search for Opportunity: Eastern Europe
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Where We Search for Opportunity: China Region
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Europe
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Central Asia
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Southeast Asia
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Disclosure
Please consider carefully the fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.comor 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. The Eastern European Fund invests more than 25% of its investments in companies principally engaged in the oil & gas and banking industries. In particular, the fund will invest at least 25% of its net assets in the following industries: energy equipment and services; oil, gas and consumable fuels; and commercial banking. However, the fund will not invest more than 50% of its net assets in any one of those 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. 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.All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
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 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. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
Although Lipper makes reasonable efforts to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Lipper. Users acknowledge that they have not relied upon any warranty, condition, guarantee, or representation made by Lipper. Any use of the data for analyzing, managing, or trading financial instruments is at the user's own risk. This is not an offer to buy or sell securities. 08-804
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Disclosure
Holdings in the Global MegaTrends Fund, Eastern European Fund and Global Emerging Markets Fund as a percentage of net assets as of 9/30/08: TNK-BP (0.00%); Societe Generale (0.00%).
Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility. 08-805