Eastern Europe
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Russian Retail Rising
February 04, 2010
Tim Steinle, co-manager of the Eastern European Fund (EUROX), braved the frigid Moscow winter this week to attend a conference sponsored by the investment bank Troika Dialog. These are some of the observations he sent back to the U.S. Global investment team.
Many think of the Russian consumer sector as a defensive play, but it outperformed the MICEX stock market in 2009.
The transformation of the retail food industry has been one of the biggest drivers of this advance. What was once a state-owned enterprise with empty shelves and shriveled potatoes is now on par with what you would see in the United States.
A group of us from the conference visited stores and distribution centers of several chains in Moscow and in Podolsk, about 20 miles or so away.
One of the biggest and most successful of these chains is X5. You can see the strong corporate culture and pride employees have in their work by how spic and span their stores are. The company combines a clever store format with strong execution to move into more affluent areas.
Some new legislation will affect this space. As of February 1, market share per company is capped at 20 percent, and the maximum discount that retailers can receive from suppliers is 10 percent.
After many decades of state-run grocery chains, the intent of these laws is to encourage competition. In part because of these changes, we believe the consumer sector of Russia possesses good growth potential.
The MICEX Index is the real-time cap-weighted Russian composite index. It comprises the 30 most liquid stocks of Russia's largest and most developed companies from 10 main economy sectors. The MICEX Index was launched on September 22, 1997, with a base value 100. The MICEX Index is calculated and disseminated by the MICEX Stock Exchange, the main Russian stock exchange.
Holdings in the Eastern European Fund as a percentage of net assets as of December 31, 2009: X5 1.68%, Troika Dialog 0.00% #10-92
A Car and Housing Growth Story
January 26, 2010
Tim Steinle, co-manager of the Eastern European Fund (EUROX), appeared on Bloomberg’s “Taking Stock” to discuss Emerging Europe with host Pimm Fox. Their conversation covered current trends in Russia, Hungary and Turkey.
Tim explained the near-term benefit of an interest rate hike for Turkey’s automobile, banking and housing sectors.
In December [car] sales were 112 percent [year-over-year]. That’s a huge pickup and we believe that’s driven largely by the 1,500-basis-point reduction Turkey has gone through…Even though the central bank is still sounding dovish, it seems like in 2010 the rates will probably go up at least by 20 basis points.
A few things that investors should know about Turkey’s housing situation – its average population age is 35 and roughly 700,000 new households are created each year. Home ownership is a cultural tradition there, but only 60 percent of households actually own their homes. As the recovery progresses, this could be a positive for both housing and banking.
*By clicking the link, you will be directed to a third-party Web site. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content. The Istanbul Stock Exchange National 100 Index (XU100) is a capitalization-weighted index composed of National Market companies except investment trusts. 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 Russian Trading Systems Index is a capitalization-weighted index that is calculated in USD. The index is comprised of stocks traded on the Russian Trading System. Holdings in the Eastern European Fund as a percentage of net assets as of 12/31/09: OTP Bank Plc 3.34%, Sberbank of Russian Federation 10.36%, Ford Otomotiv Sanayi 0.00%, Tofas Turk Otomobil 0.88%, Fiat 0.00%
Spotlight: Ukraine Election
January 15, 2010
Jack Dzierwa, global strategist and co-manager of the Eastern European Fund (EUROX), discusses Sunday’s presidential election in Ukraine.
The big question in Ukraine’s presidential election is whether or not it will help bring back economic growth.
Frontrunners Viktor Yanukovych and Yulia Timoshenko have been joined in the race by prominent businessman Sergei Tigipko. This likely means a runoff vote in early February before we have a desperately needed change at the top.
The 2004 Orange Revolution that promised a new Ukraine never really delivered economically. Making matters worse, Ukraine was one of the European countries hardest hit by the global downturn.
Ukraine’s major stock market, the PFTS, has underperformed Russia’s MICEX by 83 percent over the past five years—37 percent last year alone. In addition, outgoing president Viktor Yushchenko antagonized Russia during his term and Moscow responded by cutting off natural gas deliveries.
Ukraine’s GDP fell 14 percent in 2009, its currency was the world’s worst against the dollar as of September and only Argentina’s sovereign credit rating is worse, according to Businessweek. Ukraine was hit so hard by the financial crisis that it needed a $16.4 billion bailout by the International Monetary Fund (IMF).
Perhaps the harshest indicator – one economist in a Ukrainian newspaper says Ukraine’s total GDP today is only 76 percent of what it was in 1991, just after the Soviet era ended.
As grim as the situation is, there is reason to believe conditions can improve.
Heavy industry, including aviation engine and turbo generator manufacturing, dominates the PFTS. As conditions in major export destinations in Western Europe and Russia improve, so should the Ukrainian market. In addition, some integrated telecom, steel, utility and fertilizer companies have experienced healthy rebounds.
Russia is Europe’s primary natural gas supplier via Ukraine pipelines, so the country can benefit from healthier relationships with both Moscow and the European Union.
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.
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. 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. 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 PFTS is Ukraine’s largest stock exchange with approximately 220 companies as listed.
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
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Net Asset Value
as of 02/08/2010
- Global Resources Fund
PSPFX $8.09 -0.10 - Gold and Precious Metals Fund
USERX $14.02 -0.34 - World Precious Minerals Fund
UNWPX $15.65 -0.27 - China Region Fund
USCOX $7.49 -0.07 - Eastern European Fund
EUROX $8.46 -0.13 - Global Emerging Markets Fund
GEMFX $7.22 -0.04 - Global MegaTrends Fund
MEGAX $7.47 -0.06 - All American Equity Fund
GBTFX $18.57 -0.10 - Holmes Growth Fund
ACBGX $14.45 -0.06 - Tax Free Fund
USUTX $12.28 No Change - 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