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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.

Will the China Bulls Turn Out for the Year of the Pig?
February 5, 2019

Happy Chinese New Year 2019 the year of the pig

Happy Year of the Pig! This week marks the start of China’s Spring Festival, during which an estimated 3 billion trips will be made using the country’s massive transportation network of roads and rail. That figure is a slight rise from the same period last year, despite slowing economic growth prompted by trade tensions with the U.S. and a strengthening dollar.

Ctrip, China’s largest online travel agency, forecasts that more than 400 million people will travel across the country for family reunions, while some 7 million will go abroad.

To prepare for the additional travel demand, China built as many as 10 new railways at the end of last year and expanded the length of its high-speed rail system to 29,000 kilometers, or around 18,000 miles. Meanwhile, the Civil Aviation Administration of China (CAAC) expects more than 532,000 flights to be scheduled during the week-long travel rush, a 12 percent increase from last year, according to China Daily.

China has nearly 220 billion dollars in new infrastructure projects since the start of 2018

Since the start of 2018, the National Development and Reform Commission (NDRC), China’s top economic planner, has approved 27 large-scale infrastructure projects, totaling nearly $220 billion. Among the largest is the expansion of the Shanghai Metro, already the world’s largest transit system by route length. The $44 billion project, to be completed by 2023, will add six new subway lines and three intercity railways. 

Looking for a Resolution to the Trade Dispute

If you’ve been paying attention, you might have noticed that much of the news involving China right now is negative. Its manufacturing sector is slowing, and economic growth in 2018 was at a nearly-30-year low.

I believe this is only a temporary lull as we await a resolution to the U.S.-China trade war and a fall in the U.S. dollar, which has made American goods more expensive to its trade partners. So I remain bullish on China and the surrounding region, and I believe now might be an advantageous time to gain exposure.

The U.S. and China reportedly made “tremendous progress” during last week’s high-stakes talks between President Donald Trump and China’s Vice Premier Liu He. Although technology and intellectual property rights remain sticking points, China is slated to “substantially” increase its purchases of U.S. crops, energy and services.

Case in point: Just two days after the January 31 talks, Chinese state-run agricultural conglomerate COFCO Group and Sinograin reported purchasing at least 1 million tons each of American soybeans. This marked the Asian country’s first order of soybeans from the U.S. since summer of last year, when purchases were halted as a result of escalating trade tariffs.

Official White House photo

The good news here is that the U.S. and China appear to be working toward a resolution. Official Chinese outlets called the talks candid, specific and fruitful. President Trump affirmed that, although “much work remains to be done,” progress is being made.

Looking ahead, Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer will meet at least once with Chinese President Xi Jinping sometime later this month. And Trump is reportedly considering planning a meeting with Chinese President Xi Jinping, possibly near the time of the summit with North Korea’s Kim Jong Un.

Ongoing U.S.-China Tension Expected to Divert Trade to the European Union

I’m confident that a resolution will come sooner rather than later, as neither side has anything to gain from continued trade hostility. In fact, they have much to lose. This week, the United Nations Conference on Trade and Development (UNCTD) estimated that the tariffs imposed by Washington and Beijing will do very little to protect the respective economies, and that a majority of the bilateral trade will instead be diverted to firms in other countries, most of them European. Those in Mexico, Japan and Canada would also stand to benefit.

US China trade tariffs expected to divert trade to other countries
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“Overall, European Union exports are those likely to increase the most, capturing about $70 billion of the United States-China bilateral trade—$50 billion of Chinese exports to the U.S., and $20 billion of U.S. exports to China,” the report reads.

I think it’s safe to say that neither China nor the U.S. wants this, which drives me to believe that we’ll see a satisfactory resolution in the coming weeks. Hopefully then China’s manufacturing sector and gross domestic product (GDP) growth can recover.

How to Gain Exposure to China and the Surrounding Region

An excellent way to participate, I believe, is with our China Region Fund (USCOX), which provides investors access to one of the world’s fastest growing regions.  

China and the surrounding region has experienced many changes since USCOX opened in 1994, but we believe the region continues to hold further investment opportunities. Many Asian countries possess characteristics similar to the U.S. prior to the industrial revolution: a thriving, young workforce; migration from rural to urban areas; and shifting sentiment toward consumption.

Curious to learn more? Explore and discover the China Region Fund (USCOX) today by clicking here!

 

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. Foreside Fund Services, LLC, Distributor. U.S. Global Investors is the investment adviser.

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.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the China Region Fund as a percentage of net assets as of 12/31/2018: Ctrip.com International Ltd. 0.00%, COFCO Group 0.00%, Sinograin Oils Corp. 0.00%.

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

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Freezing Temperatures Could Heat Up Natural Gas Prices
November 19, 2018

Midterm Elections Gridlock Was the Best Possible Outcome

Here in San Antonio, the temperature hit a bone-chilling low of 27 degrees last Wednesday, breaking a 102-year-old record for mid-November. An out-of-state visitor, Cornerstone Macro’s Head of Portfolio Insights Stephen Gregory, speculated that the Central Texas temperature, ordinarily mild this time of year, was down more than three standard deviations. I didn’t make the calculation, but my guess would be about the same.

With temperatures so low, it’s perhaps no surprise that natural gas had one of its best days in years. Its price popped almost 18 percent last Wednesday—before falling nearly as much on Thursday. The Energy Information Administration (EIA) reported that natural gas storage in the lower 48 states was below the five-year average as of October 31. This, combined with a stronger-than-expected start to winter, prompted traders to push prices to a four-year high of $4.84 per million British thermal units (MBtu). Meanwhile, natural gas futures trading hit an all-time daily volume record of 1.2 million contracts, according to CME Group.

Natural gas prices exploded
click to enlarge

Freezing temperatures increase demand for heating, much of which is provided by natural gas. In January of this year, when temperatures fell below the average in many parts of the U.S., demand reached a single-day record of 150.7 billion cubic feet, according to the EIA. I can’t say we’ll beat this record again in the coming months, but forecasts for more freezing weather this Thanksgiving week and beyond should support additional moves to the upside.

What kind of moves? Says Jacob Meisel, chief weather analyst at Bespoke Weather Services, the price could get to $7 or $8 per MBtus, levels we haven’t seen since 2008. “This looks like a capitulation move today, but if cold weather really takes off, the sky is the limit,” Meisel told CNBC.

Oil Selloff Steepest in Three Years, “Overdone”

Natural gas wasn’t the only commodity that broke records last week. On Tuesday, West Texas Intermediate (WTI) crude oil ended an extraordinary 12 straight days of losses, settling at a 2018 low of $55.69 per barrel, down more than 27 percent from its 2018 high in early October. Triggered by concerns of a global demand slowdown, the plunge is oil’s steepest in three years, and a stunning reversal from last month’s calls for $100-per-barrel crude.

The bears appear to have overreacted, though. “Crude-oil-position liquidations have never been this extreme, indicating the purge in WTI futures is overdone,” writes Business Intelligence strategist Mike McGlone, adding that petroleum markets have “never experienced a comparable decline over a similar period.” 

World Needs the Equivalent of Another Russia’s Worth of Crude

Again, the oil selloff halted last Tuesday, the same day the International Energy Agency (IEA) announced its estimate that U.S. shale will need to add the equivalent of Russia’s entire oil production by 2025 to prevent a global shortage. In its flagship “World Energy Outlook 2018,” the Paris-based group says that world oil consumption will increase significantly in the coming decades due to “rising petrochemicals, trucking and aviation demand.”

“U.S. shale production, which has already been expanding at record pace, would have to add more than 10 million barrels a day from today to 2025, the equivalent of adding another Russia to global supply in seven years—which would be an historically unprecedented feat,” according to the IEA.

Jets fyling high

The U.S. produced 11.7 million barrels of crude per day in the week ended November 9. That means shale producers would need to ramp up output to at least 21 million barrels in seven years, if the IEA’s estimates are accurate.

I think this would be a challenge, but a real possibility. The reason I think this is because the U.S. fracking industry continues to prove it can produce more with less. According to a recent report by the EIA, U.S. crude oil and natural gas production increased in 2017, despite there being fewer wells. This is thanks in large part to horizontal wells, which “contact more reservoir rock and therefore produce greater volumes” of oil and gas. Although more expensive to drill, horizontal wells are growing faster than traditional vertical wells. In 2017 they accounted for 13 percent of total well drills, up from only 10 percent three years earlier.

Also in the IEA’s outlook: By 2040, emerging markets, led by China and India, will account for 40 percent of global energy demand, up from 20 percent in 2000. Below, note how the European Union is expected to be displaced by India and Africa in terms of energy demand within the next couple of decades.

Emerging markets will account for 40 percent of global energy demand by 2040
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I believe only the U.S. fracking industry would be able to meet this demand. Russia and Saudi Arabia are pumping at record levels right now, but production cuts of as much as 1.4 million barrels per day are being discussed among members of the Organization of Petroleum Exporting Countries (OPEC) to firm up prices. If cuts do go into effect, U.S. producers can be expected to fill in the supply gap.

“It can happen but would be a small miracle,” said Fatih Birol, the IEA’s executive director.

U.S. Shale “More Profitable Than Ever”

Normally, ever greater supply would weigh on prices and weaken profitability. Based on new data, it looks as if the U.S. fracking industry has changed the game.

According to Reuters, “U.S. shale firms are more profitable than ever after a strong third quarter,” according to the agency’s analysis of 32 independent producers. “These companies are producing more efficiently, generating more cash flow and consolidating in a wave of mergers.”

Nearly a third of these 32 companies “generates more cash from operations than they spent on drilling and shareholder payouts, a group including Devon Energy, EOG Resources and Continental Resources. A year ago, there were just three companies on that list,” Reuters writes.

Thanksgiving Travel to Hit 13-Year High

On a final but related note, this week is Thanksgiving, the busiest travel season of the year in the U.S. The American Automobile Association (AAA) predicts that the number of travelers on Thanksgiving Day, by auto and air, will top 54.3 million people, an increase of almost 5 percent from last year, and the highest volume since 2005.

Similarly, Airlines for America (A4A) believes U.S. Thanksgiving air travel demand between last Friday and November 27 will climb to an all-time high of 30.6 million passengers. “It is thanks to incredibly accessible and affordable flight options that more travelers than ever before are visiting loved ones, wrapping up year-end business or enjoying a vacation this Thanksgiving,” commented A4A Vice President and Chief Economist John Heimlich.

Thanksgiving 2018 US air travel demand estimated to rise 5 percent from last year
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While I’m on the topic of aviation, A4A also reported that U.S. airport revenues have grown faster than the consumer price index (CPI) as well as the number of air passengers and aircraft departures. From 2000 to 2017, airport revenues rose 87 percent, double the pace of U.S. inflation. Increased growth came thanks to a number of resources, from taxes and fees to the Passenger Facility Charge (PFC) and Airport & Airway Trust Fund (AATF).

US airport revenues have grown faster than flights passengers and inflation
click to enlarge

According to Fitch Ratings, “strong overall performance for U.S. airports should continue undeterred for the foreseeable future.” Over 90 percent of the airports Fitch currently rates have a “Stable Rating Outlook,” signifying continued stability deep into 2019.

Curious to learn more? Explore our latest slideshow, “How Do Airports Make Money?”

 

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.

The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals.  The weights of components are based on consumer spending patterns.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 9/30/2018.

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(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

 

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India's Booming Economy Expected to Firm Up Gold Demand
November 7, 2018

Gold and Diwali

Starting today, the five-day festival known as Diwali—literally, “a row of lights”—will be observed by millions of Hindus, Sikhs and Jains worldwide. A celebration of good triumphing over evil, the festival typically coincides with the Hindu new year. Regular readers of Frank Talk should know that Diwali is also an auspicious time to buy gold coins and jewelry as gifts for loved ones, and in the past the increased demand has been enough to move gold prices to the upside.

This year, however, demand for coins and jewelry was muted leading up to the fall festival on account of a weaker rupee relative to the U.S. dollar. This made the precious metal less affordable for some buyers. By the end of October, gold prices were at their highest level since September 2013, according to Reuters. Gold ordinarily goes for a premium in anticipation of Diwali, but this year many retailers reported trying to attract customers by offering discounts.

Price of gold surged in India on weaker rupee denting Diwali demand
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And there could be more rupee pain ahead. In a recent note to investors, UBS forecast that the Indian currency will likely remain under pressure as global oil prices stay elevated. India is a net importer of crude oil, which has risen more than 20 percent in the 12-month period, thanks to supply disruptions in Venezuela, Libya and elsewhere.

U.S. sanctions on major oil state Iran—India’s third largest supplier of crude following Iraq and Saudi Arabia—have also lifted prices. Those sanctions went into effect this week.

India’s Economy to Grow Faster Than China’s

Nevertheless, India’s economy is advancing at the world’s fastest pace right now. I believe this should have a positive effect on gold demand in the long term as the size of the country’s middle class expands. The International Monetary Fund (IMF) recently predicted the Indian economy this year to grow 7.3 percent, or 0.7 percentage points over China’s anticipated growth rate and an incredible 2.6 percentage points over emerging and developing economies on average. Next year India is expected to grow even faster, at 7.4 percent.

India projected to be fastest growing economy this year and next
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What’s more, India’s billionaire wealth increased 36 percent in 2017, according to a recent report by UBS. The number of billionaires in India rose by 19 to 119 in total. Again, I expect this to have a noticeable impact on gold demand, the greater this wealth builds.

Curious to learn more? Be sure to visit our slideshow:

 

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

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Two Big Reasons Why I Believe China Looks Attractive Right Now
September 25, 2018

emerging markets look like a buy after decoupling from the U.S. market

Emerging markets continue to decouple from the U.S. market, making them look attractive as a value play—particularly distressed Chinese equities. Below I’ll share with you two big reasons why I think China is well-positioned to outperform over the long term.

So far this year, the MSCI Emerging Markets Index has given up about 10 percent, mostly on currency weakness and global trade fears. The S&P 500 Index, meanwhile, has advanced roughly 9 percent as a flood of passive index buying pushes valuations up and companies buy back their own stock at a record pace.

emerging markets look like a buy after decoupling from the U.S. market
click to enlarge

S&P Dow Jones Indices reported this week that buybacks in the second quarter increased almost 60 percent from the same three months a year ago to a record $190.6 billion. For the 12 months ended June 30, S&P 500 companies, flush with cash thanks to corporate tax reform, spent an unprecedented $645.8 billion shrinking their float. In the first half of 2018, in fact, companies spent more on buybacks than they did on capital expenditures.

As I told CNBC recently, this, combined with fewer stocks available for fundamental investing, could contribute toward a massive selloff when it comes time for multibillion-dollar index funds to rebalance at year’s end.

But let’s get back to emerging markets.

The Selloff Is Overdone, According to Experts

Again, China in particular looks like a buying opportunity with stocks down near a four-year low. Speaking with CNBC last week, chief executive of J.P. Morgan Chase’s China business, Mark Leung, said that the emerging market selloff is largely overdone. “If you look at the positioning and also the fundamentals side, we think there are reasons to start going into emerging markets for the medium and long term,” Leung said, adding, “China is a big piece.”

This view was echoed by Catherine Cai, chairman of UBS’s Greater China investment banking arm, who told CNBC that she believes “among all the emerging markets, China’s still representing the most attractive market.”

The U.S. just imposed tariffs on as much as $200 billion worth of Chinese imports, which will have the effect of raising consumer prices. Among the retailers and brands that have already announced they will be passing costs on to consumers are Walmart, General Motors, Toyota, Coca-Cola and MillerCoors. China plans to retaliate with tariffs of its own on $60 billion in U.S. exports. 

Despite this, the tariffs’ impact on the Chinese economy will be “very small,” Cai said, as the country’s government is now “prepared” to handle the additional pressure.

The Power of 600 Million Millennials

The two reasons I find China so compelling right now are 1) promising demographics, and 2) financial reform.

As for the first reason, there’s really no arguing against the sheer math of Asia’s exploding population. You’ve heard the expression “There is strength in numbers,” and nowhere is that more apparent than in China and India, affectionately known as “Chindia,” where 40 percent of all humans live.

But there’s more. According to a recent report from CLSA, the entire continent of Asia is now home to nearly one billion millennials, or people aged 20 to 34. China and India alone contribute more than 600 million millennials, the youngest of whom will “start to hit their ‘peak’ earning capacity” over the next 10 years, says CLSA.

Asian millennials are changing global consumption
click to enlarge

“Millennials are more affluent, better educated with difference perspectives and priorities than their parents’ generation, which tends to sacrifice present consumption for the future,” CLSA writes. “Millennials care less about saving.”

This translates into not only the largest consumer class the world has ever seen, but also the most eager to spend their money on goods and services their parents and grandparents could never have imagined.

Consumption, in fact, now accounts for nearly 80 percent of China’s gross domestic product (GDP) growth, helping the country become less dependent on capital input and foreign trade.

China’s Capital Markets Continue to Mature

chinese premiere li keqiang: the pool is full of water and the challenge is to unblock the channels. As for my second reason, financial reform, Premier Li Keqiang recently pledged to give equal treatment to foreign investors in capital markets, all in the name of bolstering confidence among investors who may have been rattled lately by the U.S.-China trade dispute.

“The pool is full of water,” Li said, “and the challenge is to unblock the channels.”

China A-shares, those traded in the Shanghai and Shenzhen stock exchanges, were once available only to Chinese citizens living on the mainland. But as a sign of the financial market’s maturation, last week marked the first time that foreign investors living in mainland China, as well as employees of listed Chinese firms living overseas, could freely trade A-shares.

Many A-shares have already been added to indexes provided by MSCI, and FTSE Russell said it will decide soon whether to do the same.

As we’ve seen in the U.S. market and elsewhere, a stock’s inclusion in a major index has meant, for better or worse, that it automatically gets an infusion of investors’ money, regardless of fundamentals.

That Premier Li plans to open China’s market up even further is exciting, and makes its investment case even stronger.

To learn more about investment opportunities in China and the surrounding region, watch our short video by clicking 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(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

The MSCI Emerging Markets Index captures large and mid-cap representation across 24 Emerging Markets (EM) countries. The S&P 500 index is a basket of 500 of the largest U.S. stocks, weighted by market capitalization. 

Gross domestic product (GDP) is the total value of goods produced and services provided in a country during one year.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 6/30/2018: Coca-Cola Bottling Co. Consolidated.

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China's Belt and Road Initiative Opens Up Unprecedented Opportunities
September 4, 2018

 

Mapping the belt and road initiatives progress
click to enlarge

It was the best of times, it was the worst of times. A tale of two world leaders, U.S. president Donald Trump and China president Xi Jinping—both of whose countries have among the world’s best economies right now. But whereas Xi is playing Santa Claus to the rest of the world, doling out loans to finance-starved countries, Trump is playing Scrooge, waging an economic war with Canada, the European Union, China and others.

Respected economist Art Laffer, whom I’ve written about before, has always supported leaders who ignite global trade rather than close off its borders. A full-blown trade war, Laffer said recently, would be a “curse” on the U.S. economy.

Post-World War II, it was the U.S. that led global trade and infrastructure build-out—the Marshall Plan in Europe, the Interstate Highway System domestically. Both projects required massive amounts of commodities and raw materials, and employed hundreds of thousands of people.

Today, of the two leaders mentioned above, it’s Xi who has a clear foreign policy when it comes to trade and infrastructure.

U.S. Fund Flows Into Africa Are Slowing

Case in point: This week, Beijing will host the Forum on China-Africa Cooperation (FOCAC). The summit, which takes place once every three years and is attended by representatives from 52 African countries, touches on areas as diverse as technology, trade, infrastructure, diplomacy, culture and agriculture.

During the last forum, in 2015, China pledged as much as $60 billion toward Africa’s development in interest-free loans. The Asian country, in fact, has increased its investments in the continent around 520 percent over the last 15 years, according to Global Trade Magazine.

As just one example, Kenya agreed to let China finance and build a standard gauge railway (SGR) connecting two major cities at a cost of $3.8 billion. Contracted by China Road and Bridge, the Mombasa-Nairobi SGR is Kenya’s largest infrastructure project since it declared independence from the U.K. in 1963.

Meanwhile, U.S. fund flows to Africa have been receding, and they’re expected to slow even more during Trump’s administration.

Chinese investment in Africa has held steady as the United States declines
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Xi isn’t doing this out of the goodness of his heart, of course. China, having been Africa’s largest trading partner for nine consecutive years now, likely expects its investments to pay diplomatic and economic dividends for many decades to come.

Even Trump’s own commerce secretary, Wilbur Ross, acknowledges that the U.S. must do more in Africa. “By pouring money into Africa,” Ross wrote on CNBC in August, “China has seen an opportunity to both gain political influence and to reap future rewards in a continent whose economies are predicted to boom in the coming decades,” due mainly to a younger demographic.

The Belt and Road Initiative Will Affect 60 Percent of the World’s Population

The most well-known among China’s projects is the Belt and Road Initiative (BRI), one of the most ambitious undertakings in human history. The biblical-size trade and infrastructure endeavor—a sort of 21st century Silk Road—could cost 12 times as much as what the U.S. spent on the Marshall Plan to rebuild Europe following World War II. The BRI has the participation of 76 countries from Asia, Africa and Europe, and is poised not only to reshape globe trade but also raise the living standards for more than half of the world’s population.

According to the International Monetary Fund (IMF), the “BRI has great potential for China and participating countries. It could fill large and long-standing infrastructure gaps in partner countries, boosting their growth prospects, strengthening supply chains and trade and increasing employment.”

The BRI, which turns five years old this fall, announced in 2013, will have a strong presence in Eastern Europe, also a prime destination for China FDI, as the countries there offer a wealth of metals, minerals and agricultural products.

GPD and PMI car anolog

According to Stratfor, Chinese companies have invested as much as $300 billion in Eastern Europe over the past decade. Last May, China and Ukraine agreed to cooperate on joint projects valued at nearly $7 billion, and in November, it was announced that China Railway International and China Pacific Construction would build a $2 billion subway line in the Ukrainian capital, Kiev. More recently, Chinese engineers with China Harbor Engineering completed a $40 million dredging operation in Ukraine’s Yuzhny Sea Port, allowing it to receive larger ships.

Like the Marshall Plan before it, the BRI will require tremendous amounts of commodities, metals and fuel.

In 2011, members of our investment team and I had the opportunity to see one of China’s high speed trains firsthand. The train averaged 185 miles per hour during our 923-mile trip from Shanghai to Beijing. As I wrote then, “I’ve traveled to all corners of the world and have seen many things during my travels, but viewing China’s explosive growth as it flies by you is something I will never forget.”

U.S. Investors Hiked Exposure to China

In light of all this, there’s no lack of negative news on China right now. I see headline after headline on the country’s “slowing economy” and “weakening consumption,” but like most things are in the media, these proclamations are overblown.

Look at China’s purchasing manager’s index (PMI). Fresh data out last Friday showed that manufacturing expansion in August accelerated slightly faster than in the previous month. The PMI hit 51.3, up from 51.2 in July and beating analysts’ expectations of 51.0. This was the 25th straight month of economic expansion, despite what I earlier described as the Trump-Kudlow trade war with China.  

China manufacturing activity accelerated in august despite trade concerns purchasing managers index from august 2016 to august 2018
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Also, as the Peterson Institute for International Economics (PIIE) wrote last week, “there is no empirical evidence that consumption in China is weakening,” contrary to what “official” retail sales data show.

The PIIE’s Nicholas Lardy cited Alibaba’s recent announcement that sales rose 60 percent in the most recent quarter compared to a year ago—“a sign that Chinese retail sales data likely do not fully capture China’s burgeoning digital retail.”

“In any case,” Lardy continued, “retail sales are an increasingly less useful measure of consumption, as China’s large and still growing middle class is spending a growing share of their rising income on education, health care, travel and other services that are not captured in official data on retail sales.”

gross domestic product in absoluve terms and gdp on purchasing parity valuation
click to enlarge

Savvy investors, I believe, get it and can see the opportunity in the world’s number one economy, as ranked by purchasing power parity (PPP). Reuters reports that, in the week ended August 22, U.S. investors poured $572 million into funds that invest in Chinese equities. That was the most for such funds since January.

Although some expect Trump to impose tariffs on $200 billion additional Chinese imports, perhaps as early as this week, “investors are expecting Beijing to continue counteracting the effects of the [trade] dispute with increasingly relaxed monetary and fiscal policies,” Reuters says.

Curious to learn more? Watch this short video on investment opportunities in China!

 

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(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their 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.

Gross domestic product (GDP) is the total value of goods produced and services provided in a country during one year. Purchasing power parity (PPP) is a theory which states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 6/30/2018.

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Net Asset Value
as of 02/15/2019

Global Resources Fund PSPFX $4.59 0.03 Gold and Precious Metals Fund USERX $7.51 0.15 World Precious Minerals Fund UNWPX $2.94 0.05 China Region Fund USCOX $8.11 -0.07 Emerging Europe Fund EUROX $6.48 0.05 All American Equity Fund GBTFX $24.03 0.18 Holmes Macro Trends Fund MEGAX $16.80 0.16 Near-Term Tax Free Fund NEARX $2.20 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change