Eastern Europe
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Why the Fall of the Wall Meant So Much
November 11, 2009
Twenty years ago this week, the Berlin Wall fell and in doing so, set off a string of momentous events that in short order saw the reunification of Germany, the collapse of the Soviet Union, and freedoms and democracy spread across a long-oppressed part of the world.
Few events in modern history have had such a significant impact on the lives of so many people, but momentum for the wall’s fall began years earlier.
A member of our investment team who grew up in Poland points out the important role played by Polish leader Lech Walesa, the shipyard electrician who led the Solidarity labor movement that drew support from around the world.
Solidarity’s success in creating the first free trade union behind the Iron Curtain weakened the region’s Communist governments and won Walesa the Nobel Peace Prize. Walesa, later Poland’s first post-Communist president, was in Berlin this week to tip over the first in a series of artistic dominos representing pivotal events from that time.
A member of our team who grew up in Azerbaijan during the Soviet era describes the Berlin Wall as the line in the sand for the Soviets. Once it was gone, it was a natural next step for the former Soviet republics to pursue their own independence.
Prior to the wall’s fall, defiance of Moscow was rare in the Soviet republics, but that changed quickly. By the early 1990s, the Soviet Union was no more – an outcome that few would have believed possible just a couple of years earlier.
As global investors, we watch government policies for peace and prosperity as part of our investment process. The dramatic changes in the former Soviet bloc, for example, led us to create our Eastern European Fund (EUROX) in 1997 – this was one of the first funds focusing on this region. Having a diverse investment team is a tremendous asset in helping us to spot opportunities arising from important global events.
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.
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. 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 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. #09-795
Britain’s Spy in the Sky
October 27, 2009
Ever feel like somebody’s watching you? If you’ve traveled to the UK recently, chances are somebody has.
An article from Sunday’s New York Times: “Britons Weary of Surveillance in Minor Cases” details some troubling surveillance tactics being used in Britain.
According to London’s Evening Standard, more than 10,000 cameras have been set up around the city at a cost of $326 million.
These cameras are being used to monitor comings and goings along the streets, and to help solve a range of crimes – from pickpocketing and loan-sharking to failing to clean up after a pet.
A controversial law enacted in 2000 allows the authorities to install the cameras. The costs are tangible, both in dollar terms and loss of privacy, but the benefit is less clear: The parts of London with the most cameras have a below-average rate of solving crimes, the Evening Standard says.
Read “Britons Weary of Surveillance in Minor Cases”
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 in this article, you will be redirected to a third-party website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content. #09-749
Russia’s Mixed Bag Recovery
September 23, 2009
Russian consumer demand continued to fall during August. Retail sales were down 9.6 percent and investment demand fell more than 19 percent year-over-year, according to a recent report from UniCredit.
The data show further deterioration and raise the likelihood that the Central Bank of Russia will continue to support the economy through monetary easing, UniCredit says.
It’s really a mixed bag for Russia when evaluating data points. Russia’s unemployment rate is at an eight-year high of 8.7 percent, but that’s a full percentage point better than the United States’ unemployment rate of 9.7 percent in August.
Also, Russia’s economy underwent waves of industrialization during the 1930s and 1950s, which puts Russia well ahead of China and India in terms of labor productivity when the global economy ramps up again. However, long-term demographics show an aging population with declining life expectancy which could affect growth five or ten years down the road.
It’s likely an economic recovery in Russia will take some time. GDP growth is down 10.2 percent year-over-year while analysts are expecting a Q409 incremental growth of just 1.5 percent.
Russia’s biggest prospect for economic growth comes from beyond its borders. With an unrivaled amount of reserves of a number of important industrial resources, Russia’s ability to export these resources will likely chart its course of recovery.
It’s important to watch how the ruble performs during periods of commodity strength. As commodity exporters in Russia receive dollars and convert them to rubles, the local currency generally appreciates, lifting equities.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
Emerging Europe re-emerging
August 28, 2009
Emerging Europe investing is staging a comeback.
In the past couple of months, stock markets in the region have posted big rallies. The index for Lithuania has shot up 58 percent since June 30, while the indexes for its Baltic neighbors Estonia and Latvia have climbed 33 percent and 27 percent, respectively.
In Central Europe, the key stock indexes for the Czech Republic and Hungary are both up 26 percent in the third quarter through Friday, and Poland’s index has gained 20 percent.
All of these stock markets suffered mightily in the global credit crisis as their overheated economies stalled, their currencies dropped, and the cost of loans denominated in dollars and euros skyrocketed.
Now it appears that intervention by the International Monetary Fund, combined with a growing belief that the worst of the financial woes and global recession are behind us, may have mitigated the region’s risk profile and lured investors back.
Not that all of the news coming out of the region is good—the IMF estimates that Latvia’s economy will shrink 18 percent in 2009 and another 4 percent in 2010. The IMF has agreed to provide $2.4 billion in loans to Latvia, one of the nations hit hardest by the global financial crisis and subsequent recession. Lithuania is also receiving external funding after seeing its GDP contract 12.3 percent during the second quarter.
Russia, the largest market in Emerging Europe, is up more than 14 percent since June 30, while No. 2 Turkey has risen nearly 29 percent.
The regional upswing has also benefited stock indexes in Austria (+22 percent) and Sweden (+16 percent), which both have strong banking ties to Emerging Europe.
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The Battle of the “Bears”
August 10, 2009
If I told you that an investment in California was riskier than Russia, would that surprise you?
Well according to the current prices for 10-year credit default swaps, Russia is less likely to default on its debt than the state of California.
Credit default swaps are basically credit insurance. As the likelihood that a debtor will default on its debt narrows, so does the cost to insure that debt.
As the chart below shows, it costs 278 basis points of the principal amount to insure State of California debt and 268 basis points to insure sovereign Russian Federation debt.
According to Bloomberg, the cost of credit swaps for 45 developing countries are down almost eight percent in the past five months and this week marks the first time ever the cost of debt for emerging nations is less than their industrialized counterparts.
While developed nations are footing the bill for a bailout of the global financial system the International Monetary Fund (IMF) says could reach $10 trillion, the BRICs (Brazil, Russia, India, China) have accumulated $3 trillion in reserves—43 percent of the worldwide total.
The developing world has learned from past crises and adapted, while California is really just now experiencing and struggling through a significant financial crisis of its own, issuing IOUs, raising taxes and slashing spending to plug a $60 billion deficit. California may be a good proxy for much of the developed world and may be a sign that a significant shift is taking place in the current world order.
This is a very interesting development and should force investors to rethink preconceived notions of risk.
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Net Asset Value
as of 11/20/2009
- Global Resources Fund
PSPFX $8.53 -0.06 - Gold and Precious Metals Fund
USERX $16.05 -0.08 - World Precious Minerals Fund
UNWPX $17.97 -0.02 - China Region Fund
USCOX $8.24 No Change - Eastern European Fund
EUROX $8.97 -0.10 - Global Emerging Markets Fund
GEMFX $7.94 -0.02 - Global MegaTrends Fund
MEGAX $7.94 -0.04 - All American Equity Fund
GBTFX $19.21 -0.10 - Holmes Growth Fund
ACBGX $15.12 -0.06 - Tax Free Fund
USUTX $12.24 +0.01 - Near-Term Tax Free Fund
NEARX $2.22 No Change - U.S. Government Securities Savings Fund
UGSXX $1.00 No Change - U.S. Treasury Securities Cash Fund
USTXX $1.00 No Change