December has historically been one of the strongest months of the year for equity markets. Taking a look over the past 20 years, the S&P 500 Index in December has averaged 2 percent.

This year has been extraordinarily turbulent, though. In fact, 2011 ranks “among the most volatile market years on record,” says Oppenheimer. When you look at the average absolute daily price changes of the S&P 500, you’ll see that the period from July through the middle of November averaged 1.8 percent. This is about a percent higher than the 60-year average, and just barely above 2008’s daily price changes. The fact is a little less significant when you consider that the 2008 number represents the entire year. Regardless, stock prices have been turbulent.

The S&P 500 isn’t the only index with extreme volatility, as stock markets around the world have been extremely correlated. Take a look at the chart below, which tracks the average two-year rolling correlation between the weekly price change of 23 different developed stock markets and the MSCI World Index. Stock price correlation has remained above 80 percent since 2009—the highest over the 25-year period. Gloom Boom & Doom Editor Marc Faber says that he can’t “recall in the forty years that I have been working in the investment business, equity markets which were this correlated.”

We believe that correlations will decrease along with volatility as we get more clarity on the eurozone crisis and see signs of stability in the global economy. Our investment team noted that volatility fell this week, with the CBOE Volatility Index (VIX) declining 20 percent. This could be related to the news that November U.S unemployment unexpectedly dropped to 8.6 percent, U.S. auto sales in November were the strongest in more than two years, and preliminary data on holiday retail sales appears to be strong. According to Bloomberg News, Black Friday sales hit a record high this year, with consumers spending $11.4 billion.

Oppenheimer is one bull on U.S. equities, as the firm believes that investors have overestimated the negative impact the crisis in Europe has on the U.S. economy and corporate profitability. Oppenheimer points to the fact that the U.S. is less reliant on Europe, with only 18 percent of U.S. exports heading across the Atlantic. This has fallen from 23 percent over the past two years. Meanwhile, U.S. export growth has averaged “double-digit year-over-year growth since the end of 2009,” says Oppenheimer.

“Corporate America remains a pillar of potency and stability,” says Oppenheimer. Multinational companies have diversified their revenue streams by heading into fast-growing markets while still keeping their costs under control, says Oppenheimer. Additionally, cash remains at record highs, which provides a cushion to handle unforeseen issues.

Positive news came out of China this week too. For the first time in three years, the People’s Bank of China announced a cut in the reserve requirement ratio (RRR) by 50 basis points. This is a step in the right direction, says Director of Research John Derrick, as China tries to balance too-low growth with too-high inflation. Over the past three years, China has been raising the RRR to curtail loan growth, and this cut is the first step to promoting loan growth. The RRR cut was also a part of a global central bank coordination to make sure there was enough liquidity in the system, says John.

China’s RRR cut happened a month sooner than ISI expected, but the stars may be aligning in China. If you look at where the country’s purchasing managers’ index, the leading economic indicators level and inflation were during the last RRR cut three years ago, these figures were all about where they are now, says ISI.

The energy sector continues to see merger and acquisition activity (See a previous discussion in Case Study: Buyouts Crystallize Value in the Market). In November, a pipeline deal was announced between Enbridge and Enterprise Products Partners, causing West Texas Intermediate (WTI) oil prices to jump. As a result of the companies’ agreement, oil which had been flowing from the Gulf Coast to the Midwest will actually be reversed. Now, the landlocked crude in Cushing, Oklahoma will be delivered to the refiners in the Houston-area. The Wall Street Journal says the 500-mile line “could ship an initial 150,000 barrels of crude per day by the second quarter of next year.”

Evan Smith, co-manager of the Global Resources Fund (PSPFX), discussed the effect on WTI oil prices with Yahoo the week the deal was announced. Evan says that for several months there’s been a discount in the West Texas Intermediate compared to Brent crude oil. Now that the glut of oil parked in the Midwest will move to the Coast, sentiment improved and WTI pricing moved more in line with Brent crude.

Lately investors have been inundated with negative news surrounding Europe. It’s important to put these facts in perspective along with other positive signs in the market, including those that we are seeing in the U.S., China and the energy sector. While the past two turbulent years have made it difficult for investors to remember the benefits of long-term investing, Oppenheimer believes that, “when the future return potential of an asset class is widely doubted, the exact opposite tends to occur.” We agree with this statement, as we believe great opportunities can be found during turbulent times like today.

John Derrick, director of research, contributed to this commentary.

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.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. MSCI World Index is a capitalization weighted index that monitors the performance of stocks from around the world. Chicago Board Options Exchange (CBOE) Volatility Index (VIX) shows the market's expectation of 30-day volatility. 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.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Holdings in the Global Resources Fund as a percentage of net assets as of September 30, 2011: Enbridge 0.00%, Enterprise Products Partners 0.00%.

Earlier this month, I spent a few days at the CLSA AsiaUSA Forum in San Francisco, which offered a geopolitical and economic intellectual feast for global investors. The research firm gathered a well-rounded cast of engaging speakers that included Republican Presidential candidate Herman Cain, Hall of Fame quarterback Steve Young, Pollster extraordinaire Frank Luntz and renowned physicist Dr. Michio Kaku. Here’s a photo I snapped during a Q&A session with former U.S. Vice President Dick Cheney.

Year-after-year I make it a point to attend this conference because of the comprehensive examination CLSA puts together on the factors affecting global markets. To gather its exclusive knowledge of Asia, the research firm posts its analysts in the U.S. and many Asian countries, including China, Indonesia and the Philippines.

CLSA often discusses the numerous opportunities for U.S. businesses in China because of the rise of the Asian middle class, an increasing urbanization rate, and additional disposable income. The latter has been partially spurred by recent increases in wages. In fact, many people in China saw their wages rise 20 to 30 percent last year.

However, while these wage increases have been positive to the Chinese consumer and the companies which sell the goods, they have prompted many people to ask me how rising wages affect China’s status as a low-cost manufacturing hub for the world. Does this reduce the profitability of companies that expect to continue to benefit from the country?

This is where CLSA’s more balanced view of China’s business landscape is not only helpful, but essential. It is not enough to look at rising wages to appreciate how attractive China is for businesses. To get a better understanding, let’s compare three factors—the World Bank’s Ease of Doing Business score, minimum wage and workforce size—across several Asian markets. The World Bank annually analyzes regulations that either enhance or constrain business activity among 183 economies. For a business that wants to expand into different markets, this report is helpful in determining the ease or difficulty in obtaining construction permits, electricity and credit, as well as hiring workers and trading across borders.

On the World Bank’s scale, the business environment is easier in Thailand and Malaysia than in China and Vietnam, and companies would find it even more difficult to expand their businesses into Indonesia, India and Cambodia. However, Indonesia, India and Cambodia have cheaper labor markets than China or Thailand. But of all of these countries, China offers the largest labor market. CLSA says China makes for an “appealing hub for manufacturing” when you evaluate its unique combination of strengths together.

In addition, China’s workforce is better educated and more highly skilled compared to other Southeast Asian countries, says CLSA. China was also named the “world’s most connected economy” by the United Nations Conference on Trade and Development’s Liner Shipping Connectivity Index, when it comes to how integrated global shipping networks are to enable worldwide trade. The country also has superior infrastructure and trade connectivity compared to many emerging markets, “even occasionally besting developed economies,” says CLSA.
In 2010, countries such as Hong Kong, Japan, South Korea and Germany depended on China for data processing, apparel, and iron and steel exports. China also happens to be America’s third-largest destination for exports behind Canada and Mexico. China’s largest import partners in 2010 were Japan, South Korea, the U.S., Germany and Australia, according to the CIA World Factbook.

For those companies not already doing business in China, there’s one dominant factor that shows they should start: the vast domestic market. Companies may be able to find a cheaper workforce in Bangladesh, India or Sri Lanka, but being located in China allows convenient access to what is rapidly becoming the world’s largest consumer market.

I’ve discussed how many U.S.-based consumer discretionary businesses have been riding the wave of China’s growth all the way to the bank. Starbucks, Coca-Cola and Kraft have expanded their operations in recent years, as they have been converting the traditional tea drinkers to consuming other beverages including coffee, juice and carbonated drinks. (Read it now: China’s Rising Imports of American Goods.)

In American Classic Finds New Life in China, I talked about how American car company General Motors (GM), is also experiencing growth in Asia as Chinese consumers look to purchase their first automobile. According to the China Passenger Car Association, Shanghai-GM topped October’s list of the top ten largest automakers in China. In 2010, GM sold nearly 550,000 cars in China, and expects its global sales to expand by as much as 10 percent in 2012, says Bloomberg.

These are only a few examples of American companies benefiting from the rise of China. Have you positioned your portfolio to do the same?

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The following securities mentioned in the article were held by one or more of U.S. Global Investors Fund as of September 30, 2011:  Starbucks, Coca-Cola

The United Nations Conference on Trade and Development (UNCTAD) liner shipping connectivity index is generated from five components: (a) number of ships; (b) total container-carrying capacity of those ships; (c) maximum vessel size; (d) number of services; and (e) number of companies that deploy container ships on services from and to a country’s ports.

With a middle class that could to balloon to 1.4 billion people by 2030, China has become a lifeline for automakers looking to keep their profits afloat in a weak global economy. Through October 2011, more than 15 million new vehicles have been purchased in China, according to ChinaAutoWeb*. That’s about 3 percent higher than a year ago. Toyota, Audi, Volkswagen, BMW and Nissan are all searching for ways to tap into this fast-growing market.

One of the country’s biggest success stories is General Motors (GM), which has positioned itself as one of the most recognizable and highly sought after cars in China. Shanghai-GM topped October’s list of the top-ten largest automakers in China with more than 100,000 cars sold, according to data from the China Passenger Car Association. With the help of a joint venture with China’s SGM Wuling, GM is expanding its operations into emerging markets like China and India. The additional revenue streams from these growing middle classes are helping GM retake the title as the “world’s leading auto manufacturer,” a title it had given away to Toyota in 2008.

GM sold nearly 550,000 cars in China in 2010, more than triple its sales in the United States. The car company expects its global sales to expand by as much as 10 percent in 2012, according to Bloomberg*. The company has also announced plans to introduce its new Chevrolet Volt plug-in hybrid car in eight cities throughout China.

A recent article in The New York Times* says, “The American carmaker General Motors has found the Chinese market to be a life-saving opportunity for the reinvention of the Buick brand.” Buick, once called “damaged brand” by a GM executive, leads China in luxury and subcompact car sales and the Buick Excelle is the country’s top-selling sedan.

While U.S. drivers often stereotype Buick motorists as “drivers who have a soft spot for the early-bird special,” Buick is “one of the hottest luxury cars in China.”

GM’s rise to stardom didn’t happen overnight. The luxury brand was a proud favorite of the last Chinese Emperor, Pu Yi, who was a fond owner of not one, but two Buicks. Experts suggest GM’s longstanding legacy has helped America’s oldest surviving automobile to prosper in China.

GM isn’t the only company speeding up deliveries to China. GM, Volkswagen and Nissan are on schedule to collectively deliver more than 4 million vehicles to China in 2011, according to Bloomberg. In the past year Ford, Nissan and Chrysler have announced business plans to increase their annual auto output to China.

China’s car culture is still developing and has plenty of room to grow. The country still has a low rate of vehicle ownership and the total number of cars sold per capita is 13 times smaller than the U.S., according to research from McKinsey. In addition, nearly 80 percent of Chinese car purchases will be made by first-time buyers.

As millions of Chinese consumers open up their wallets for their first vehicle purchase; foreign automakers continue to position themselves to take advantage in this accelerating marketplace.

*By clicking the links above, you will be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for their content.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The following securities mentioned in the article were held by one or more of U.S. Global Investors Fund as of September 30, 2011:  Dongfeng Motor Co., Ford Motor Co.