In its shift toward a consumption-driven economy, China has been embracing digital technology at rates that dwarf those of many developed countries. The Chinese have been scooping up smartphones, accessing the internet and consuming goods from online retailers at an incredible pace. We believe the world needs to quickly adapt to China becoming a major player in the digital marketplace, as this trend is in the early stages of exciting growth.

See how consumption patterns have changed.

Only a few mobile phone owners in China are using smartphones today, but the country is quickly closing that gap. As you can see below, the smartphone penetration as a percentage of total mobile phone users is lower than that in the U.S. In 2012, smartphone devices made up only a little more than 10 percent in China; in the U.S., they comprised 35 percent.

However, the smartphone market is one of the fastest growing sectors in China these days. This year, 3G smartphone users are expected to double to 300 million people, which is equivalent to every single resident in the U.S. owning a smartphone! 

And the country’s smartphone trend is early in adoption: Penetration in 2013 is estimated to be only 23 percent of mobile users, versus 40 percent in the U.S., says CLSA.

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With a growing use of smartphones, “mobile web is the best way to reach users,” says CLSA. While the number of users with regular internet access in China has been rising substantially, after iOS and Android became available in 2009, mobile internet adoption has gone vertical. This is 4.5 times faster than internet users, according to Lee Kai-Fu, one of the pioneers who helped proliferate the internet in China in the late 1990s. If the trajectory maintains its course, mobile internet users should soon surpass the number of users on traditional formats.

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This skyrocketing use of the internet is one of the driving forces that is “powering consumption,” especially in the e-tail industry. According to McKinsey Global Institute, China is already the world’s second-largest e-tail market. Since 2003, the market has had an annual growth rate of a whopping 120 percent!

You can see a snapshot of this tremendous industry in McKinsey’s analysis of online retail sales. According to a sample of Chinese cities in 2011, apparel, recreation and education, and household products are “the three largest online retail segments in China,” says McKinsey.

Among 266 cities representing more than 70 percent of online retail sales, the share of online consumption in apparel reached 35 percent. Recreational products, including consumer electronics, books and tickets took a 20 percent share of online consumption. Household products such as appliances and furniture had a 15 percent share.

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However, online retailing is only in its infancy in China, with its future perhaps “more impressive,” says McKinsey. The research firm estimates by 2020, the e-tailing industry may “generate $420 billion to $650 billion in sales.” If growth continues at its current pace, “China’s market will equal that of the United States, Japan, the United Kingdom, Germany, and France combined today.”

With more Chinese owning smartphones, having access to the internet and buying online, Michael Ding, portfolio manager of the China Region Fund (USCOX), believes there are tremendous business opportunities opening up beyond online shopping, including online games, online search, online advertisements, and many other internet applications.

The China Region Fund, which invests in regional sectors exhibiting top relative strength, has benefited from an allocation to information technology in recent months. We believe this has helped the fund outperform its benchmark Hang Seng Composite Index (HSCI) this year, with the fund increasing 6.70 percent and the HSCI rising only 0.50 percent as of May 31, 2013. See the industry breakdown of the fund now.

Expense ratios as stated in the most recent prospectus. The expense ratio after waivers is a voluntary limit on total fund operating expenses (exclusive of any acquired fund fees and expenses, performance fees, taxes, brokerage commissions and interest) that U.S. Global Investors, Inc. can modify or terminate at any time, which may lower a fund’s yield or return. Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any direct fees described in the fund’s prospectus (e.g., short-term trading fees of 0.05%) which, if applicable, would lower your total returns. Performance quoted for periods of one year or less is cumulative and not annualized. Obtain performance data current to the most recent month-end at www.usfunds.com or 1-800-US-FUNDS.

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.

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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Thanks to the life support of $12 trillion and 515 rate cuts by the world’s central banks since March 2009, the global economy’s heart is beginning to beat again. As the market senses a robust economic recovery is underway, expectations are climbing that this growth will continue. Even the Federal Reserve has hinted that it may taper quantitative easing because of the improved economic situation. As a result, interest rates are increasing.

Europe was the lone wild card, but following Germany’s change of heart away from austerity, a positive outlook for growth, and therefore, rates, is rising in that area of the world as well.

In the chart below, you can see the close correlation between the eurozone’s positive economic surprises and bond yields. The Citi Eurozone Economic Surprise Index, which compares economic data to expectations, has improved, bouncing from a low in April. At the same time, the yield on Germany’s 10-year bond has also begun to increase.

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Given this rising interest rate environment, we wondered how gold, oil, and commodities, as well as energy and materials stocks have historically performed. With a hot economy, will we see hot commodities?

We found some compelling results for resource investors.

Goldman Sachs’ historical playbook finds that “higher rates are ok for Asian equities.” Since 1990, there were 35 periods in which U.S. rates rose 50 basis points or more, and 75 percent of the time, the MSCI All Country Asia Pacific (excluding Japan) Index climbed higher, says Goldman.

The research firm plotted Asian countries as well as Australia according to their growth sensitivity compared to their U.S. rate sensitivity. You can see that the index tends to be positively impacted by rising rates in the U.S. and is relatively growth sensitive.

Across Asia, China, Korea and Taiwan—proxies for global growth—are the most positively affected by rising rates. These three countries are also the highest growth-sensitive areas of the world. That makes today’s situation of economic growth with rising rates a powerful combination for commodity investors. When economies such as China and Korea are growing, their use of commodities tends to expand as well.

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On the opposite end of the spectrum, countries such as India, Indonesia and the Philippines are negatively impacted by rising rates, as their economies are domestic driven and do not benefit from rising growth expectations in the U.S.

The Key is to Take Action Now
Don’t wait for the Fed to officially raise rates, as research shows that investors get the most benefit from materials and energy stocks by getting in now. Take a look at William O’Neil & Co.’s table below, which illustrates how critical it was to be invested in commodities before rates increased.

The firm looked at individual sectors, such as retail, technology, and utilities, along with broad indices, including the S&P 500 Index, the Dow Jones Industrial Average and the Nasdaq over four decades. It calculated the gains not only received during the period of the rate increases, but also six months prior to the initiation of rate increases.

In every instance, the energy sector performed “extremely well during these periods,” with basic materials also outperforming, says William O’Neil.

A Rerun of That ‘70s Show?
Looking ahead, if the economy starts to experience runaway inflation, history shows it makes sense to hold real assets. A decade ago, Investment Advisers Stephen Leeb and Donna Leeb wrote a very informative book on how to profit from the “Turbulent Post-Technology Market Boom.” The book, Defying the Market, discussed how to protect against deflationary and inflationary scares, comparing investment ideas that were likely novel to many people in their day, including energy, food, gold, and small-cap stocks.

One table listed the performance of these investments during an earlier era when Americans faced high inflation—the 1970s.

In that decade, gold, silver and oil outperformed many other areas of the market. Gold stocks rose 28 percent on an annualized basis and oil companies grew 14 percent. The S&P 500 Index, on the other hand, grew 8.4 percent on a nominal basis. After factoring in sky-high inflation of 8.10 percent, gold and oil still added significant real returns. The real return of the overall stock market, on the other hand, was nearly zero.

“Stocks leveraged to growth, such as the oils and oil drillers, did splendidly. But the big-cap stocks [i.e. the general market] … were complete duds,” wrote the Leebs.

While it is still too early to tell whether investors will see “That ‘70s Show” again, one valid consideration to protect from inflationary measures is an allocation to real assets like commodities.

An investment that covers all the commodity bases is the Global Resources Fund (PSPFX), which selects commodity stocks across 10 diverse industries, including oil services, exploration and production companies, as well as precious metals stocks. We believe this approach offers investors the possibility for better growth with lower volatility. Take a closer look today.

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.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

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 All Country Asia Pacific (excluding Japan) Index captures large and mid cap representation across 4 of 5 Developed Markets countries (excluding Japan) and 8 emerging markets countries in the Asia Pacific region. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.

An unexpected change of heart happened in May that you might not have heard about. After years of resisting any path other than its rigorous course, Germany announced it is backing off from pure austerity and is now planning to spend billions of euros to stimulate the economies of Europe.

Germany, which had been the economic rock of Europe, was facing fissures in its economy as well as an upcoming election season.

With pressure building, Finance Minister Wolfgang Schäuble and Chancellor Angela Merkel are now “willing to abandon ironclad tenets of their current bailout philosophy,” says Spiegel Online.

Berlin’s about-face seemed to be underreported, but the news is significant to global growth. Many countries around the world, especially emerging markets, have been trying to charge ahead, implementing stimulative easing and monetary policies to strengthen their economies, yet Europe was still a drag.

Just look at the unemployment rate in the Europe area, which recently rose to 12.2 percent, a new record, according to Business Insider.

Weeks ago, when a student discovered a mistake in the famous report of Harvard professors Carmen Reinhart and Ken Rogoff, I said that calling this data into question provides a platform for Germany and the European Union to lessen austerity measures and delay the inevitable. It appears that Schäuble and Merkel have taken their first step onto the stage of unprecedented monetary policies.

From March 2009 when the first round of quantitative easing began, central banks have cut interest rates a total of 515 times and injected $12 trillion into markets, says Bank of America Merrill Lynch (BoA-ML). As a result, U.S. stock investors saw the market take off an astounding 166 percent since the first shot of liquidity.

However, contrary to what you may think, the U.S. is not the best performing market in the world. Take a look at the chart below, which ranks the top 10 equity markets’ total return over these past four years. Stocks in Indonesia grew 372 percent, Turkey rose 286 percent and Mexico has climbed 211 percent. Even Singapore, Korea and Australia climbed more than the U.S. stocks.

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In addition to all the global liquidity sloshing around, central banks have also “crushed bond yields to the point that almost 50 percent of all global government bond market cap currently trades below 1 percent,” according to BoA-ML.

In a great illustration of today’s low yield environment, the research firm compared the yields across debt markets from 2007 and 2008 to today. In June 2007, Treasuries were yielding more than 4.5 percent; today, they are sitting just above 0.5 percent. Even the riskier high-yield corporate bonds, which climbed to a high of 23 percent in December 2008, have fallen to about 5 percent.

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Even though market pundits talk about elevated rates on the horizon, we believe significantly higher rates that would move the needle for an income investor is a ways off. Low yields should be a significant factor for awhile.

That’s why it may be a good time to look at emerging markets dividend-paying stocks. Many emerging markets are growing faster than their developed counterparts. In addition, emerging markets are currently yielding more than U.S. stocks. While the S&P 500 Index pays a dividend yield of 2.05 percent, the stocks in the MSCI Emerging Markets Index are yielding 2.65 percent.

For those who can handle a little more risk, take a closer look at the Global Emerging Markets Fund (GEMFX), which seeks undervalued, smaller and dividend-paying companies located in developing markets around the world. On a year-to-date basis, the fund is outperforming its benchmark, the MSCI Emerging Markets Index by nearly 6 percent. See the fund’s latest holdings.

Expense ratios as stated in the most recent prospectus. Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any direct fees described in the fund’s prospectus (e.g., short-term trading fees of 0.05%) which, if applicable, would lower your total returns. Performance quoted for periods of one year or less is cumulative and not annualized. Obtain performance data current to the most recent month-end at www.usfunds.com or 1-800-US-FUNDS.

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.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The MSCI Emerging Markets Total Net Return Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in emerging market countries on a net return basis (i.e., reflects the minimum possible dividend reinvestment after deduction of the maximum rate withholding tax).