During this Chinese New Year, more than a billion people will be welcoming in the Year of the Black Water Snake, celebrating with family and friends all week long. The previous Year of the Black Water Snake was in 1953, which was when China launched its first Five-Year Plan and the average annual income for a family in the U.S. was about $4,000.

As the Dragon took its last breath of the year, it exhaled plenty of fire into China: Looking at year-over-year data as of the end of January, new bank loans, passenger car sales and exports all rose while inflation was slightly lower. Imports of key commodities we track, crude oil, aluminum and copper, were also exceptional, with month-over-month increases of 6 percent, 4 percent and 3 percent, respectively.

Increasing money supply and easing policy in China have also helped to breathe life back into China’s equity market. Below is an update of the chart we showed Investor Alert readers back in October when the venomous sentiment toward China was at extreme levels. We believed Chinese stocks were significantly undervalued compared to emerging markets and that its equities were due for a rebound. I indicated that an increase in money supply would be the needed oxygen for an equity resurgence.

Over 2013, we expect the government to continue its accommodative efforts, which should reinforce the equity rally. In addition, the new pyramid of power is focused on growth, as it seeks to improve and reform policies that will provide its residents with opportunities and social security, increase incomes and raise standards of living, which should encourage domestic consumption.

Growth is set to be considerable over the next several years: Jefferies Equity Strategy team anticipates that China’s GDP will grow at a compound annual growth rate of 6.9 percent and by 2025, will almost equal that of the U.S.

In addition, China’s GDP per capita is projected to climb to about $18,000 on a purchasing power parity and domestic consumption is likely to make up a larger portion of its GDP, jumping from about 49 percent in 2012 to 73 percent of GDP by 2025, says Jefferies.

To achieve these goals, there needs to be significant reforms to promote a “new urbanization.” While China has been anticipating the rise of urbanization by building out the country’s infrastructure of medical services, housing, water, high speed rail system, and roads, the mobility of many residents remains restricted by its internal residence status, called the hukou (pronounced “who-cow”).

First put into place in 1958, the hukou system was a means of controlling migration throughout the country. It designates where a person or household may reside by geographic area. According to J.P. Morgan’s Jing Ulrich, “the system’s primary function was to maintain a sufficient agricultural labor force, while preventing excessive strain on urban resources.”

Under this registration system, if a resident does not have an urban hukou, the family has no access to social benefits such as free education, health care and pensions that are provided to permanent residents of that city.

Michael Ding, portfolio manager of the China Region Fund (USCOX), was raised in rural Dalian and remembers what it was like living under the registration system, which he says was driven by the government’s need to ration food. Still fresh in leaders’ minds were memories of millions of people dying from starvation, and the government wanted to ensure there was enough food for urban residents.

With this upbringing, Michael developed a knack for quickly understanding rationing systems, as his family was unable to purchase additional food regardless if they had money or grow vegetables in their backyard.

So while it was reported that more than half of China’s population lives in an urban area, only about one-third of the total population holds an urban hukou. Andy Rothman from CLSA calls these roughly 250 million migrants “quasi-urbanized,” which means that one worker lives in the city, while the rest of the family remains in the rural home. This equates to a real nationwide urbanization rate of only about 35 percent. You can see in Jefferies’ chart how the official urban residence status differs across the country compared to the urbanization ratio.

If the government reforms the hukou, it is estimated that 600 million people might move to the cities over the next 20 years. This includes 300 million migrants becoming “new urban residents” and 300 million rural residents moving to urban areas by 2030, says Citi Research. According to its data, “urbanization could bring another 150 million surplus rural laborers to the cities.”

“[P]otential reforms in hukou registration and healthcare systems together with extended substance allowance will likely encourage more migrant workers to live in cities for the long term with higher consumption propensities,” says Morgan Stanley. Because urbanization is a big driver for the housing market, CLSA believes property sales in China’s 600 third-tier cities could significantly benefit from hukou reform, as about 100 million migrant workers currently reside in these cities.

The government has begun to factor in the massive ramifications of these families moving to the cities. According to J.P. Morgan, “investments in urbanization are already placing a heavier emphasis on the human benefits of development.” Regarding social housing, in 2012, the country met its goal of starting on 7.2 million units and completing about 5 million units, according to the research firm. For 2013, China’s plans call for an additional 10 million units that will be under construction or complete by the end of the year.

What to Expect in the Year of the Snake: Bite or Might?
Maybe both, if you follow CLSA’s Feng Shui Index. Every year since 1992, CLSA Asia-Pacific Markets team takes a lighthearted look at the fortunes that may befall the Hang Seng Index.

During the Year of the Dragon, CLSA’s predictions of the Hang Seng Index came amazingly close to how stocks actually performed. Equities in China fell into a bit of a slump toward the beginning of the year. Then the Dragon woke up and fired up the markets toward the latter half of the Chinese year.

Over the next several months CLSA foresees Chinese stocks to slink like a snake, rising in the beginning of the year before sidewinding in the latter half of the year. According to CLSA, the elements fall out of balance, as “the crucial Fire element all but dies away, Earth falls, Metal overshoots and Water puts a damper on prospects.”

Download your copy of CLSA’s Feng Shui Index here.

In times of growth, a young snake sheds its skin often, sloughing off a worn exterior to reveal a fresh layer of scales. The Asian giant has experienced growth the world has never seen before, and during the Year of the Snake, we look forward to seeing a new leadership take action, sloughing off worn policies to unveil a stronger vibrant economy. See how we’ve positioned the China Region Fund to benefit from this potential growth.

Don’t miss the presentation that received more than a quarter-million page views on businessinsider.com. To download your copy, go to www.usfunds.com, follow us on Twitter or like us on Facebook.

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.

The Hang Seng Index is a capitalization-weighted index of 33 companies that represent approximately 70 percent of the total market capitalization of The Stock Exchange of Hong Kong.

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The turbulent clouds that settled upon California’s bond market are beginning to dissipate, as the state’s general obligation debt was recently upgraded to ‘A’ by Standards & Poor’s. It has been almost a year since the rating agency has had a sunny outlook on the Sunshine State, but a series of improving economic data and better fiscal position have been turning things around.

Business Insider’s slideshow showcases several key factors of how the state “came back from the brink.” Since bottoming around 2009, payrolls, home prices and economic activity have been increasing in California. Silicon Valley’s tech area is booming, San Francisco’s foreclosure rate is “one of the lowest in the nation” and the state has a Democratic supermajority, which may make political gridlock a thing of the past, says the online financial news site.

See Business Insiders’ “tale of the turnaround.”

Governor Jerry Brown’s proposed budget now includes an $850 million surplus, which is a “stark contrast” to previous years when the state saw “deficits in the tens of billions,” reports the Wall Street Journal.

Last summer, John Derrick, portfolio manager of U.S. Global’s Near-Term Tax Free Bond Fund (NEARX) and Tax Free Bond Fund (USUTX) said that municipalities were as resilient as they have historically been, and S&P’s recent rating release gives further credence to that opinion. We believe Cali’s improvement is positive for bond investors, as the upgrade means there will likely be greater confidence in the state’s bonds.

In a diversified portfolio, municipal bonds remain a worthy investment. For those trying to minimize taxes, muni bonds are especially attractive in a taxable account, as they are free from state and federal taxes and offer attractive yields in a low rate environment. Find out which bond fund is right for you.

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 clicking the link above, you will be directed 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. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local income taxes, and if applicable, may subject certain investors to the Alternative Minimum Tax as well. Each tax free fund may invest up to 20% of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. The tax free funds may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer.

If you’ve been a hibernating bear lately, you’ve missed a ton of positive news, as U.S. construction spending rose, ISM manufacturing data beat expectations and the country added 157,000 jobs. In addition, the JP Morgan Global Purchasing Managers’ Index rose to 51.5, staying above the expansion level for a second month in a row. The strengthening data, as well as improving investor sentiment, helped the Dow hit 14,000 for the first time since 2007.

For the month of January, U.S. stocks experienced the best month in two decades. Per the Stock Traders’ Almanac market indicator, the “January Barometer,” the performance of the S&P 500 Index in the first month of the year dictates where stock prices will head for the year. Let’s hope so. As Adam Shell from USA Today writes, “While there's no guarantee that what happens in the first month of a new year will continue for the remaining 11 months, history is on the side of investors.”

Shell asked for my thoughts on this trend and I told him that sentiment has improved in part because several uncertainties have been removed from the market. Read the rest of the story here.

Sentiment among individuals, advisors and traders has experienced a sudden spike recently, says BCA Research. Its latest Bloomberg numbers show that 53 percent of those surveyed expect equities to be the best-performing asset class over the next year. This represents a “17-point jump over the previous poll in November, and the highest reading in the four-year history of the survey,” says BCA.

My anecdotal experience this week at the World Money Show in Orlando, Florida supports the view that investors are going “all-in” for equities, as the exhibit hall and conference rooms were packed with thousands of enthusiastic investors looking to gain insights. We enjoyed good conversations and I’m happy to have contributed a few ideas at the general session that attendees could immediately put into action.

As a result of the sentiment that rose faster than the summer heat in the Sunshine State, it’s common to question if the market has climbed so high that it might correct and revert to a long-term mean.

Take a look at the oscillator to see today’s incredible shift in context with its historical moves. Using 10 years of data, the S&P 500 Index has moved one standard deviation from its mean over the past 60 trading days. The MSCI Emerging Markets Index is only about a half of a standard deviation from its mean over the same time frame. These charts indicate that the indices are not at extreme levels, like the low we experienced in 2009 or the high a few months later. Rather, the stocks are moving within their normal band of volatility.

This gauge has been a reliable indicator for our investment team, as markets that enter the extreme territory have historically reverted back to their mean. However, don’t panic if a correction should occur, as it would be healthy and reflective of the normal volatility inherent in both U.S. and emerging markets.

BCA believes, “equities should outperform Treasurys over a cyclical horizon of two-to-three years.” The research firm points to the relatively strong earnings season in the U.S. and the Federal Reserve’s ongoing monetary stimulus, “which should provide a tailwind for stocks.” Here are three more reasons to be positive on equities:

1. U.S. businesses and households are deleveraging
After hitting a peak, you can see in each of the charts below that there has been progress in bringing down the levels of debt across businesses as well as individual households. Less debt gives consumers and companies more confidence to invest, spend and hire.

2. New Home Sales Should Increase
Home builders have become increasingly optimistic, as measured by the NAHB Homebuilder Sentiment Index, which has climbed significantly higher in recent months. Historically, new home sales have eventually followed, which is positive for employment, commodity demand, collateral stimulation, cars and appliances.

3. Inflation Remains Low
As you can see in the chart, inflation remains low in Japan, Europe, the U.S. and the U.K., with core consumer price inflation falling below 1.5 percent, according to BCA Research. Even though many developed nations are printing money and are experiencing the “most extreme monetary stimulus in modern times,” inflation is stable.

So will the Dow go beyond 14,000? Although you can’t predict how hot the weather will be this summer, the clouds appear to be parting to reveal the sun today. Make sure your asset allocation positions your portfolio to shine.

By clicking the link above, you will be directed 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. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. 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 S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The NAHB Housing Market Index is derived from a monthly survey, and gauges builder perceptions of current single-family home sales and sales expectations for the next six months, as well as rating traffic of prospective buyers. Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.