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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.

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 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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Middle East to Spend $80 Billion on Public Transport
April 15, 2011

This week, the International Association of Public Transport (IAPT) World Congress held its 59th annual conference in Dubai. Two thousand delegates from 80 countries around the world attended the four-day event. In between their meetings, delegates took rides on the city's public transportation, including the longest driverless metro line in the world, completed less than two years ago.

Long known as a city dependent on its cars for convenient and comfortable travel, Dubai has been ramping up its infrastructure to relieve increasing traffic congestion driven by urbanization. Car traffic is forecasted to increase four times by 2020 as the population jumps from 1.2 million people in 2005 to more than 5 million by 2020.

To realize its vision of “Safe and Smooth Transport for All,” Dubai’s Roads and Transport Authority (RTA) has been fervently working on projects that cover several different modes of transport. These include 166 miles of metro lines, 268 new tram lines, 90 bus routes with 2,000 buses and 5 new waterways covering 130 miles with 67 water taxis.

Dubai is only one of several areas focused on these projects. The RTA Executive Director estimates that countries in the Middle East would most likely invest $80 billion in the public transport system over the next 10 years. A special report produced by the Financial Times highlights the progression of these projects. Across Saudi Arabia, Qatar and United Arab Emirates, numerous rail commuter and long-distance links are under construction or projected to be underway soon.

One high-speed rail project, the Mecca-Medina line, highlights a unique travel need in the region. To fulfill the requirements of the hajj, Muslims are expected to make the hajj pilgrimage to Mecca, the sacred city of Islam, at least once in their lifetime. And millions do.

Known as the largest annual gathering of people in the world, during the last month of the Islamic year, 2-to-3 million believers make the pilgrimage every year. Last November marked the first time that a metro light rail transported those making the journey at an estimated 199 miles per hour.

It will be interesting to see these exciting projects develop over the next several years. Between the urban areas of already crowded cities, to the spread-out, low-density regions across the desert, the pace of growth demands the infrastructure to support “safe and smooth” public transportation for local residents and visitors around the world.

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What's Driving Russia's Outperformance?
March 28, 2011

The Russian MICEX Index, which increased 22.5 percent in 2010, has jumped 15 percent so far in 2011, significantly outperforming many other markets.

China is the second-best performer of the BRICs, rising more than 5 percent, while India (down over 10 percent) and Brazil (down over 2 percent) have lagged. Overall, the MSCI Emerging Markets Index has dropped just over 1 percent.

This has effectively recoupled Russia with the other BRIC countries. The Russian economy lagged out-of-the-gate once the global recovery began, leading some to question whether it belonged in the same category as Brazil, China and India. Those sentiments seemed premature and symptomatic of an anti-Russia mindset.

Russian’s outperformance has been driven by several factors. First, the Russian ruble has appreciated 7 percent against the U.S. dollar, boosting stock market performance for U.S. investors.  This development also has a long-term benefit as a strong ruble benefits the country’s domestic sectors, something we’ll discuss later.

A second factor driving Russia has been the geopolitical and natural disaster events that have transpired during the past few weeks. Russia is relatively safe from the type of political uprisings seen in the Middle East and North Africa. Its government is decidedly popular with the public and the one-two punch of President Medvedev and Prime Minister Putin give the government clout on both international and domestic fronts.

The price of oil has risen roughly 25 percent since the unrest and turmoil began in the Middle East and North Africa.  As an energy exporter of crude oil and natural gas, Russia is one of the few large economies in the world that directly benefits from higher energy prices.

Russia is the world’s largest oil producer and it’s estimated that for every $10 increase in the average annual price of oil, Russia’s revenues rise by $20 billion, according to the Financial Times.  Since Russia is not a member of OPEC, it is not bound by production caps and can increase production as it sees fit while prices are at elevated levels.

Russia is also the world’s top exporter of natural gas and Stratfor Intelligence points out the situation in Libya has shut down 11 billion cubic-meters of natural gas flow to Italy. As Europe’s third-largest consumer of natural gas, Italy has turned to Russia for gas supplies. In addition, a shutdown of several Japanese nuclear facilities could mean as much as a 14 percent increase in natural gas consumption to meet the Japan’s energy demands.

In the energy sector, the Eastern European Fund (EUROX) portfolio emphasizes companies that show strong growth in production, reserves and cash flow, relative to their peers. Specifically, Novatek, Rosneft and TNK-BP fit this profile.

Russian energy equities, which carry the largest weighting in the MICEX, have gained 25 percent this year. This is higher than non-oil Russian equities, which have risen only 7.7 percent. However, as oil and gas taxes swell the government’s revenue, these funds are increasingly allocated to social and public works programs which are likely to create an opportunity for non-energy related equities. These sectors appear poised to benefit from the current macroeconomic environment.

This table from Merrill Lynch shows the performance of the different sectors of the Russian market following a sustained rise in oil prices. Merrill Lynch compiled research on the seven instances where oil prices rose 20 percent in a two-month span and maintained at least half those gains over the following six month period.

Consumer Sector and Financials Historically Outperform After
a Rise in Energy Prices
Returns in the six months following a sustained increase in oil prices
  10/28/99 02/15/02 04/01/04 01/06/05 02/17/06 05/07/07 03/13/09 Average
Russian Consumer         96.9% 48.9% 108.4% 84.8%
Russian Financials       48.4% 30.8% 1.4% 250.2% 82.7%
Russian Telcos 282.8% -1.6% -8.4% 6.8% 1.9% 43.9% 82.0% 58.2%
Russian Utilities 200.9% -34.7% 14.6% -3.3% 12.8% -1.2% 115.4% 43.5%
Russian Materials   13.1% -15.4% 15.8% 66.0% 51.0% 95.4% 37.6%
Russian Energy 93.3% 16.3% -14.0% 21.1% 5.7% 24.0% 50.8% 28.2%
Russia 123.2% 6.6% -12.1% 17.6% 11.0% 24.1% 71.7% 34.6%
Source: Datastream/MSCI, Bof/AMI, Global Research calculations

Historically, the average gain for Russian equities is more than 34 percent. While energy generally jumps out ahead when oil prices move higher, you can see that it lags other sectors as the rally progresses. We have long been positive on both Russian financials and the consumer sector and these sectors appear well positioned going forward.

Consumer-oriented equities such as retailers have historically been the best performers, netting an 85 percent gain on average and triple the gain of energy equities. Retailers X5 and Magnit should be able to capitalize on these trends. Russian financials are next with an average 83 percent gain. Sberbank, Russia’s largest bank, is the largest holding in EUROX.

Another area that could directly benefit from the Kremlin’s cash-filled pockets is infrastructure. Russia is in dire need of a significant revamping of its infrastructure. Similar to the American Society of Civil Engineers report that rates America’s  infrastructure a “D,” the World Economic Forum says the quality of Russia’s infrastructure lags that of other emerging countries such as South Africa, Turkey, China and Mexico.

The areas most in need of upgrading are Russia’s transportation and electrical power grid. The quality of Russia’s roads ranks in the bottom-third in the world, according to Merrill Lynch, and it’s estimated that Russia loses 6 percent of GDP each year due to underdeveloped roads. In fact, the combined length of Russia’s roadways declined 6 percent between 2002 and 2010 despite a 60 percent increase in car penetration, Merrill-Lynch says.

It’s a similar story for Russia’s airports and rail network. Russia currently has roughly 300 operational airports but just 40 percent of them have paved runways and 30 percent do not have an airfield lighting system, Merrill Lynch says. The rail network, almost entirely constructed during the Soviet era, is highly concentrated in the Western region of the country and is estimated to require more than $70 billion in investment for upgrades and repairs by 2020, according to Merrill Lynch.

Russias Fed Target ProgramRussia’s aging power grid is unreliable and accident prone. Merrill Lynch projects that significant investment by 2020 is required to update and modernize the grid. With industrial consumers accounting for 85 percent of electrical consumption, keeping the power up and running is essential to maintaining Russia’s industrial production levels.

To finance the much needed infrastructure improvements, the Russian government created the $420 billion Federal Target Program (FTP). The FTP focuses on key transportation areas such as rails, autos, marine and civil aviation.

The FTP has specific goals to meet by 2015 such as increasing the percentage of roads that meet federal standards by 23 percent. The plan also calls for a 47 percent increase in the shipment of goods and a 40 percent increase in airline penetration through improvements of aviation infrastructure.

In addition to the FTP, three special events will help drive Russia’s infrastructure spending: The 2012 Asia-Pacific Economic Cooperation (APEC) Summit, 2014 Winter Olympics in Sochi and the 2018 World Cup. Merrill Lynch estimates that total spending for the World Cup will reach $50 billion. Construction for the Games in Sochi includes 161 miles of roads and 65 miles of rails, and the APEC calls for 48 new objects to be constructed for a total of $83 million.

While higher energy prices are in danger of slowing down consumers in the U.S., Western Europe and certain emerging market countries, it has the opposite effect for the Russian economy. With increased cash flow from its natural gas and crude oil exports, the Russian government has the much needed capital to invest in the country’s aging infrastructure and to support domestic consumption.

This should drive outperformance of Russian markets throughout 2011 and stimulate demand for infrastructure-related commodities such as crude oil, copper, cement and iron ore.

This commentary was written by Frank Holmes, John Derrick and Tim Steinle the co-managers of the U.S. Global Investors Eastern European 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 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 Eastern European Fund invests more than 25% 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.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Bovespa Index (IBOV) is a total return index weighted by traded volume and is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The Shanghai Composite Index (SSE) is an index of all stocks that trade on the Shanghai Stock Exchange. 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 Bombay Stock Exchange Sensitive Index (Sensex) is a cap-weighted index.  The selection of the index members has been made on the basis of liquidity, depth, and floating-stock-adjustment depth and industry representation.  Sensex has a base date and value of 100 on 1978-1979.  The index uses free float. 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. Holdings in the Eastern European Fund as a percentage of net assets as of 12/31/10: Novatek 5.39%, Rosneft 4.39%, TNK-BP 2.70%, X5 3.42%, Magnit 1.73%, Sberbank 10.19%.

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Riding the World’s Fastest Train
February 17, 2011

The world’s largest network of high-speed rails now has the world’s fastest train running on its tracks. In China in early December, a 16-car train set a new world record during a trial run by speeding faster than 302 miles per hour. During regular service, the train will travel just over 236 miles per hour.

The world’s fastest train is currently running from Shanghai to Hangzhou, a city about 120 miles to the southeast. The $445 million project cuts train travel time in half, from 90 to 45 minutes.

A first-class ticket on this route costs a little less than $20, double the cost of an ordinary Chinese train ticket. In comparison, a first-class seat on the express train from Washington, D.C. to Philadelphia, a distance of 136 miles, will run you nearly $240, according to J.P. Morgan. This train’s average speed is only 70 miles per hour.

This is just the latest development in the fascinating story of China’s transit systems. Back in November we discussed how China’s high-speed rails were expanding into the interior of the country and connecting the country’s major cities (Read China’s High Speed Rails).

Rail expansion plays a big role in the 12th Five-Year Plan announced in November. Capital expenditure on rails is expected to total $455 billion over the next five years, according to J.P. Morgan. The goal is to lay 10,000 miles of track by 2015.

These amazing feats and ambitious goals are not imported from the developed world, but products of Chinese innovation. The world’s fastest train was built by a Chinese company (China South Locomotive & Rolling Stock Corporation) which has become the third-largest high-speed train producer behind Bombardier (Canada) and Alstom (France).

As China continues to develop its infrastructure and build higher-end manufacturing industries, the incubation of engineers and innovators should pay dividends for the country’s growth into a global powerhouse.

None of U.S. Global Investors family of funds held any of the securities mentioned in this article as of December 31, 2010.

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Reading China's Signs
January 21, 2011

CLSA’s Andy Rothman is one of the best voices out there discussing the growth of China. Andy’s ability to put today’s activities and government policies in historical perspective sets him apart from both China’s naysayers and those who are overly bullish. Andy’s Sinology report is a must-read for our investment team here at U.S. Global.

The most recent Sinology contains some good 2011 forecasts from Rothman and some interesting tidbits on China that are worth sharing:

  • China’s economy is expected to grow about 9.5 percent in 2011—about 5.5 percent of that coming from investment and the rest coming from consumption.
  • Infrastructure has accounted for one-third of total urban fixed asset investment over the past six years. The amount of projects scheduled and already underway should keep that pace in 2011.
  • Total rail expansion, which includes high-speed rails, should rise to 7,500 kilometers (km) this year, up from 5,000 km in 2010. Rail expansion is expected to peak at 10,000 km
  • Investment by manufacturing firms has accounted for roughly 30 percent of total fixed asset investment over the past six years and is expected to continue in 2011.
  • Investment by private firms outpaced that of the Chinese government for nine consecutive months through November 2010, accounting for 58 percent of all urban fixed asset investment.
  • Led by China’s smaller cities, which house roughly 57 percent of China’s urban population, housing sales rose 12-15 percent on a year-over-year basis in September, October and November.
  • Rising incomes, little household debt and a healthy consumer sentiment is expected to facilitate increased consumption. Consumption is expected to account for 42 percent of GDP growth in 2011.

We’ll have to wait and see how Andy’s predictions hold up but history has shown there’s a lot of truth in his crystal ball.

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Net Asset Value
as of 05/24/2019

Global Resources Fund PSPFX $4.31 0.05 Gold and Precious Metals Fund USERX $6.53 0.04 World Precious Minerals Fund UNWPX $2.51 0.01 China Region Fund USCOX $7.91 0.05 Emerging Europe Fund EUROX $6.53 0.05 All American Equity Fund GBTFX $23.95 -0.02 Holmes Macro Trends Fund MEGAX $16.43 0.14 Near-Term Tax Free Fund NEARX $2.21 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change