China Leads the World in Green Energy, Gaming and Gambling Markets

Author: Frank Holmes
Date Posted: June 6, 2014 Read time: 47 min

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

Last month, Xian Liang, co-portfolio manager of our China Region Fund (USCOX), attended the 19th CLSA China Forum in Beijing. There he and hundreds of other global attendees were given the opportunity to meet with representatives from Chinese corporations, some of which U.S. Global owns. Xian also managed to get a sense of how the nation’s recent changes in consumer behavior and governmental policy reforms might affect its investment outlook. Although China remains an emerging market, it has lately taken a number of considerable strides to position itself as one of the world’s most attractive places to invest.

Below are three important takeaways Xian returned home with.

It’s the environment, stupid.

China Strengthened Environmental laws Harmful Pollution

China follows the old Soviet five-year plan (FYP) model, meaning once every five years the Chinese government clarifies its national strategy and sets priorities on certain policies. One of the many goals of the current 12th FYP (2011-2015) is to focus on shedding China’s unwelcome distinction of being the largest carbon emitter on the planet. Reportedly, the environment will take center stage during the upcoming 13th FYP (2016-2020), an understandable decision. We’ve all seen the photos of Chinese men and women commuting to and from work in a thick cloud of brown fog, their noses and mouths protected by white surgical masks. Sixteen percent of all land surveyed in China is polluted. According to a 2013 Pew Research poll, when asked why they might consider emigrating, close to half of Chinese respondents cited poor environmental conditions. This answer handily beat out other responses such as higher income, retirement, career development and the notorious one-child policy. (“Children’s education” came in at number one.)

To help turn the trend around, new environmental policies—the first overhaul of such legislation since 1989—were rolled out earlier this year. New laws include stricter emission standards, higher fines for pollution and an outright ban on soil pollution. What’s more, the executives of offending companies may be detained, and negligent government officials may be fined.

There are many who object to government intervention where the environment is concerned, arguing it stifles progress, handcuffs executive decision-making and kills jobs. But make no mistake: green energy is inextricably tied to greenbacks. Renewables and clean utilities companies in China are attracting billions of dollars from global investors—$54.2 billion in 2013 alone. China, in fact, currently leads the world in clean energy investment, beating the U.S. by nearly $20 billion.

Waste to Energy Plants Alternative to Landfills and Incinerators

Two Chinese companies U.S. Global Investors is proud to own are Beijing Enterprises Water and China Everbright International, both of which are committed to providing clean resources and energy. With a 5 percent market share, Beijing Enterprises is the largest water company in China, a position it’s determined to secure by building more plants and water renovation facilities. The company’s plan is to increase its market share to 10 or 12 percent within five years.

The future of China Everbright, a waste-to-energy company, looks just as bright. Prompted by the latest Environment Protection Law and soil pollution prevention standards, the hazardous waste and sewage treatment market has the potential to thrive like compost-fed grass. Because landfills have reached maximum capacity and conventional trash incinerators produce toxic smog, China Everbright is looking into using plasma gasification, a process that converts organic waste into electricity.

The world in the palm of your hand.

Asia leads the world in mobile device growth, messaging app development and the overall mobile gaming market. The region also boasts some of the best Internet infrastructure. At the head of the class sits Hong Kong, whose citizens enjoy Internet download speeds more than three times faster than what we have in the U.S.

Global Internet Download Speed Rank
Global Rank Country Download speed (Mbps)
1 Hong Kong 76
2 Singapore 61
4 South Korea 52
9 Japan 42
11 Macau 40
12 Taiwan 40
35 USA 23
47 China 18
49 Thailand 18
Source: CLSA, U.S. Global Investors
China Mobile Gaming

With faster speed comes faster change. Just as it has for the rest of the world, the Internet is transforming how the Chinese conduct their lives. Retail, for one, is progressively moving online, which benefits both the business owner and consumer. Whereas the business owner gets to cut back on overhead costs by running his company solely online, thereby being able to offer merchandise at a lower price than brick-and-mortar stores, the consumer gets to circumvent problems such as traffic gridlock and needless exposure to pollution. Last year alone, a whopping 9.2 billion express packages were delivered in China.

Another industry that’s booming is mobile gaming. By the end of this year, the Chinese mobile gaming market is expected to have generated $3.7 billion, nearly on par with the $3.9 billion Americans are expected to spend. By 2016, however, China is projected to outpace the U.S., $8.2 billion compared to $5.9 billion. This will give China a 26 percent global market share of the mobile gaming industry, with the U.S. at 19 percent.

The chart below illustrates just how dramatically the revenue generated from the Chinese mobile gaming industry is expected to rise by 2016.

China Mobile Gaming Revenue
click to enlarge

One of the Internet companies we own,, has a compelling story. It was originally conceived in 2005 as an online gaming portal that allowed gamers to connect while they played, similar to Skype. But once co-founders Jun Lei and David Li realized young people were using their service mainly for casual encounters among friends and strangers alike, they decided to rebrand YY as a live-streaming virtual karaoke room. Using a webcam, anyone can create his or her own channel—there are currently over a million of them—and perform in front of an enormous number of viewers. To get a sense of scope, YY has over 92 million active monthly subscribers and receives approximately 20 million unique visitors. Every. Single. Day.

So how does YY generate revenue?  Advertising plays a huge role, as you might imagine. But if a performer is particularly well received, viewers can choose to buy him or her virtual gifts: chocolates, roses, Chanel bags—even cars. In 2011, when the service was introduced, YY made a not-too-shabby RMB 50 million. Two years later, the company hauled in RMB 820 million, 43 percent of its total revenue.

Speaking of gaming…

Casinos, or integrated resorts (IRs), are one of the fastest growing sectors in the Asian market, generating $63 billion in 2013. By 2018, however, it’s expected to reach $110 billion, surpassing the U.S. casino market. The reason for this is simple. As the Chinese middle class swells in rank and becomes wealthier, it will have more disposable income to spend on leisure and travel. The country’s nominal GDP growth is projected to hit 11.7 percent by 2016, which means we’ll see more money being spent on tourism. If Japan chooses to legalize gambling, of course—which appears imminent—the region will face steep competition. But for now, destinations such as Hong Kong and Macau are the main attractions.

Although Macau remains and will likely continue to remain the premier casino market in Asia, the Republic of Korea and Cambodia both look very promising and are expected to grow dramatically over the next decade. One of the driving forces behind their ascent is that they have fewer restrictions and regulations than other countries. Korea, for instance, faces no restrictions on the number of tables or slot machines it can have in any one casino; the same goes for Cambodia. And unlike in other Asian countries, the duration of gaming licenses is exceedingly long. Korean casinos have no expiry date but must renew their licenses every three years, whereas Cambodian licenses last for 70 years with no need to renew.

Korean Casino

As I said, the Chinese are visiting IRs in these two markets in increasingly greater numbers. Korea received over 4.3 million Chinese visitors in 2013, up from 2.8 million in just the previous year. Cambodia was host to 463,000 gambling enthusiasts, up from 334,000 in 2012.

To accommodate this surge in Chinese tourists, both countries are scrambling to develop new IRs. Korea is set to open two new casinos in 2017 and 2018, one by Paradise Co Ltd, which we own. In Cambodia, NagaCorp Ltd, which we also own, ought to see huge growth, as it will remain the sole casino operator within 125 miles of Phnom Penh, the capital, until 2035. Political instability and poor infrastructure are a concern as always, but because the country enjoys low tax rates and staff costs, it has emerged as a favorable climate for IR development. Goldman Sachs, in fact, projects a 19 percent jump in gross gaming revenue (GGR), making Cambodia the second-fastest growing gaming market in all of Asia.

The new land of the rising sun.

After attending the CLSA China Forum, Xian’s confidence in China as an attractive place to grow your money remains strong. To be sure, the country has a host of problems it must resolve, including widespread pollution, less-than-satisfactory infrastructure inland and a weak housing sector.

But consider this: early next decade, China will likely have over 670 middle class consumers, more than the populations of the U.S. and Canada combined, all of them able to spend their money on discretionary merchandise and services. With so much potential and bandwidth, China well deserves the attention of investors across the globe.

Someone else who justly deserves everyone’s attention is our very own San Antonio Spurs, who face the Miami Heat this Sunday in Game 2 of the NBA Finals. Look past the heat of a sometimes volatile market and spur your own capital growth by focusing on the strengths in the market.

Innovation Meets Tradition in China

Index Summary

  • Major market indices finished higher this week.  The Dow Jones Industrial Average rose 1.24 percent. The S&P 500 Stock Index gained 1.34 percent, while the Nasdaq Composite advanced 1.86 percent. The Russell 2000 small capitalization index rose 2.71 percent this week.
  • The Hang Seng Composite fell 0.09 percent; Taiwan gained 0.65 percent while the KOSPI eked out a 0.03 percent gain.
  • The 10-year Treasury bond yield rose 11 basis points to finish the week at 2.59 percent.

Global Market Recovery

Domestic Equity Market

The S&P 500 Index experienced a broad based rally again this week with financial shares leading the way. The market made new highs this week as global monetary policy remains accommodative and risky assets are responding.

S&P Economic Sectors
click to enlarge


  • The financial sector was the best performer, rising 2.3 percent. The sector had been a laggard year to date with a flattening yield curve and government and regulatory pressures weighing on sentiment of the group. With this week’s “risk on” mentality, many of the large index heavyweights that have trailed for much of the year outperformed, such as Bank of America, JP Morgan and Citigroup.
  • The industrials sector was also strong this week as Joy Global rose 12 percent after reporting earnings that beat market expectations. Even with very weak coal prices and lackluster demand for their products in the mining sector, the company positively surprised the market, leading some to speculate that the stock has bottomed. Caterpillar also responded positively to this news and rallied almost 6 percent for the week.
  • Broadcom was the best performer in the S&P 500, rising 19 percent this week. The company announced on Monday that it is seeking strategic alternatives to its cellular baseband business, including a possible sale or wind down. By exiting the baseband business, the company expects to save $700 million that can be redeployed elsewhere.


  • The telecommunication services sector was the worst performer this week as AT&T and Verizon were both down more than 1 percent on concerns of intensifying competition.
  • The casino and gaming stocks were hit hard this week, as Macau gaming revenue for May disappointed. Wynn Resorts fell by 4.6 percent.
  • PVH Corp. was the worst performer in the S&P 500, falling 9 percent. The reported earnings came in below expectations and also guided second quarter earnings per share below consensus, citing a challenging North American retail landscape.


  • The European Central Bank (ECB) cut interest rates and took additional monetary easing steps, which bodes well for the global growth outlook and supports equity valuations going forward.
  • The bounce in cyclicals the past three weeks has been very encouraging and likely indicates confidence regarding not only the U.S. economic recovery but also the global trajectory. This bodes well for quality growth stocks with reasonable valuations.
  • The S&P 500 closed at a new high again this week, and while there are still some concerns in the market, the path of least resistance is higher.


  • Sell in May has not worked so far this year, but with a dearth of earnings or market moving economic data, a June swoon can’t be ruled out.
  • At almost 18 times trailing earnings, the S&P 500 is not “cheap.” Valuation may be a headwind for future market gains.
  • Housing data remains disappointing overall. If growth does not accelerate, this threatens the robustness of the broader economic recovery.

Frank Holmes to Speak in Vancouver July 22-25

The Economy and Bond Market

After falling roughly 20 basis points in May, 10-year Treasury bond yields reversed course this week and rocketed higher. Mid-week last week, the 10-year Treasury yield touched 2.40 percent intraday but analysts and market watchers were having trouble explaining why. In classic financial market fashion, yields moved sharply higher this week, not only reversing last week’s move, but moving even higher. The key stories were the ISM manufacturing index posted solid results, nonfarm payrolls were in-line with expectations, and the European Central Bank (ECB) eased as expected but also gave the market more unconventional easing measures that exceeded expectations. It is hard to ascribe the move in bond yields to fundamental data, so the best explanation appears to be the market pendulum swung too hard on the way down and just reversed that this week.


10-Year Treasury Yield
click to enlarge


  • The ECB delivered the interest rate cut the market was looking for and more. The ECB cut the rate on excess reserves held by banks at the central bank to negative 10 basis points to incentivize banks to lend those reserves. The ECB also implemented unconventional easing measures designed to spur non-mortgage lending by facilitating cheap long-term financing for banks.
  • The ISM Manufacturing index rose to 55.4 from 54.9 in May, which is a level consistent with solid economic growth.
  • Nonfarm payrolls grew 217,000 in May and met market expectations. While not a blow-out report, the economy does consistently grind out about 200,000 jobs per month and shows steady, incremental economic improvement.


  • Construction spending in April rose 0.2 percent but was less than expected.
  • The U.S. trade deficit hit a two-year high in April, even as domestic oil production has increased substantially.
  • Eurozone inflation hit a five-year low, rising 0.5 percent year-over-year. Europe is dangerously close to deflation and it is possible the ECB took too long to act.


  • Retail sales for May will be released next week, and bodes well for a strong report, with consumer credit expanding and early indicators pointing toward good growth for retailers that have already released information.
  • With key global central banks back into easy policy mode and inflation trending lower in many parts of the world, the path of least resistance for bond yields is likely down.
  • There are many moving parts to the taper decision and while the Fed began the process it is very possible that tapering could be delayed if the economy stumbles


  • Long-term bonds have posted strong returns so far year to date and with economic data looking supportive a modest sell off wouldn’t be surprising.
  • While the ECB is moving toward easing, U.K. policymakers at the Bank of England are considering raising interest rates as the housing market has been very strong along with retail sales.
  • Housing data remains mixed and the spring selling season has disappointed so far. If activity doesn’t pick up soon, housing may not be the positive catalyst many were expecting for 2014.

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Gold Market

For the week, spot gold closed at $1,253.25, up $3.52 per ounce, or 0.28 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, gained 0.73 percent. The U.S. Trade-Weighted Dollar Index rose 0.04 percent for the week.

Date Event Survey Actual Prior
June 2 Germany May Consumer Price Index 1.1% 0.9% 1.3%
June 2 U.S. May ISM Manufacturing 55.5 55.4 54.9
June 5 ECB Interest Rate Decision 0.1% 0.15% 0.25%
June 6 U.S. May Change in Nonfarm Payrolls 215K 217K 282K
June 9 U.S. Fed’s Bullard Speech in Florida
June 13 China May Retail Sales 12.1% 11.9%
June 13 Germany May CPI 0.9% 0.9%
June 13 U.S. May Producer Price Index 2.4% 2.1%


  • Gold rose $9.77 per ounce on Thursday after the European Central Bank (ECB) cut its deposit rate to 0.1 percent. The ECB became the first major central bank to take one of its main rates negative, as President Mario Draghi unveiled historic measures to fight deflation. By cutting the deposit rate to 0.1 percent, the central bank will effectively charge banks for holding money overnight. The bank also cut its main refinancing rate to 0.15 percent. Dennis Gartman, author of The Gartman Letter, said "the ECB’s policy changes were very expansionary and that on-balance is supportive of gold…I think more is coming."
  • The gold price declined on Friday morning after U.S. employment data was released, but recovered intraday, closing unchanged. U.S. employers added 217,000 jobs in May after a 282,000 gain in April. The median Bloomberg forecast called for a gain of 215,000 jobs in May.
  • China and India (Chindia) are consuming more gold than the global production, according to Bloomberg’s Ken Hoffman. His research shows that China is consuming gold at a rate of 5.15 million ounces per month, while India, at the current import-tariff reduced rate, is consuming 2.85 million ounces per month. The total Chindia consumption is 8 million ounces per month, or 560,000 ounces higher than the estimated 7.44 million ounce per month global-mine output. With this deficit in mind, any relaxation of Indian import curbs will likely skew the fundamental supply-demand balance even further into deficit.
  • The merger and acquisition (M&A) front got a new hit this week as B2Gold signed a merger-implementation agreement with Mali-focused Papillon Resources. The deal, valued at around $570 million, gives B2Gold one of the better assets in West Africa with 4.2 million ounces in the measured and indicated category, at 2.4 grams per tonne. In other news, Centerra Gold will begin shutting down its Kumtor mine in Kyrgyzstan unless the government grants necessary approvals to continue mining. Kumtor’s revenue represents about 5 percent of the whole Kyrgyz economy. It is positive that this company takes a stand against a government that continuously moves the goal posts for a critical industry.


click to enlarge

  • The U.S. Mint’s gold coin sales slumped in May, reaching a total of 35,500 ounces, 7.9 percent lower than the preceding month. The report reinforces the expectations for weak seasonal demand as we head into the summer. On a positive note, the Mint reported silver coin sales rose 12 percent from April and 15 percent from a year earlier.
  • PwC, in its latest Mine Report published Thursday, says “2013 was a year that forced the global mining industry to realign expectations in one of the most difficult operating environments for years.” Gold’s greatest decline in three decades, coupled with record impairments of $57 billion last year, saw global mining profits plunged 72 percent to a decade low of $20 billion in 2013. Gold miners lost $110 billion off market capitalization, while gold reserves fell 8 percent in 2013, to 431 million ounces.
  • No settlement has been reached in the platinum-sector strike in South Africa, nearing its nineteenth week. The stoppage has cost producers an estimated $1.9 billion in revenue, as the strike becomes the longest and costliest strike in the African nation. As a result, the mining sector contribution to the economy declined the most in 47 years, resulting in the first contraction of GDP since 2009.


  • While its commodities analysts bash gold, calling it a “slam-dunk” sell, Goldman Sachs is actually buying gold. The bank has agreed to swap dollars for gold with the government of Ecuador, a total 466,000 ounces (or $580 million), at an estimated price of $1,245 per ounce for a three-year term. Even though the Ecuadorian side denied that the transaction was a sale, it is highly unlikely the South American government will have the means to recover its gold in three years. This is especially possible since Ecuador’s use of the dollar as official currency means it can’t finance its deficits by printing money. Actions speak louder than words, and Goldman is buying gold.
  • RBC Capital Markets initiated coverage of Klondex Mines with a $3.00 price target and a buy rating. According to analyst Sam Crittenden, Klondex is uniquely positioned to create value with two high-grade gold deposits in Nevada. Klondex owns the Midas Mill and has very modest capital requirements going forward. Crittenden argues that the shares are not pricing the outstanding 41 gram per tonne grade of the company’s reserves. It also seems that it is not pricing the strategic value of its properties and mill, or the motivated and experienced team.
  • Sentry Investments wants Mexico-focused producer Timmins Gold to remake its board of directors, citing displeasure with the current management and board. Sentry, who owns about 17 percent of Timmins, proposed a slate of six directors to the eight-member board as it seeks to draw M&A attention to the miner. In other news, Detour Gold reported high-grade drill results from its regional exploration at Detour Lake, which outlines the potential for blending higher grade ore to its processing facility.


  • Gold prices are set to decline below $1,000 per ounce by 2016, according to a recent report by Societe Generale. The French bank believes the Federal Reserve is likely to hike rates at a much faster pace than currently discounted by the market. As such, bullion prices will trade below $1,200 next year and below $1,000 in 2016. In addition to selling gold, the bank also recommends selling silver due to high physical ETF holdings, as well as copper due to the Chinese slowdown.
  • The Philippines government expects to double its annual returns from mining under a new revenue-sharing scheme approved this week. The scheme aims to retain as much as 55 percent of the industry’s net revenues, or 10 percent of gross revenue, whichever is higher. In a similar move, the Tanzanian government, Africa’s fourth-largest gold producer, is reviewing mining contracts to ensure the government earns a larger share of revenues.
  • Newmont Mining has stopped output at its Batu Hijau mine in Indonesia, stating that its concentrate storage facilities are now full following the raw minerals export ban introduced by the Asian nation earlier in the year. The company will continue to sell copper concentrate from storage to PT Smelting, Indonesia’s only copper smelter. However, the smelter does not have enough capacity to buy all of Batu Hijau’s production.

Holmes Macro Trends Fund

Energy and Natural Resources Market


click to enlarge


  • The end of Mexico’s 75-year state energy monopoly is creating opportunities for investors.   Alfa SAB, a conglomerate with a stake in U.S. shale, increased its stake in Pacific Rubiales Corp, the Bogota-based company, to 12.3 percent from a previously disclosed 10 percent. That makes it the second-largest shareholder in Latin America’s biggest non-state-owned oil company.
  • Goodrich Petroleum successfully completed the highly anticipated C.H. Lewis well in Amite County, Mississippi, and achieved a peak 24-hour average production rate of 1,450 barrels of oil equivalent per day.  The company is expected to report results at the Nunnery well in the same county this month.
  • In U.S. natural gas, the prompt contract rose by about 16 cents or 3.5 percent from the prior week, as the near-term weather forecast turned warmer than normal. Conversely, the weekly storage numbers continue to imply a narrowing deficit compared with last year.


  • Governor Francisco Perez, of Argentina’s Mendoza Province, seized half of YPF S.A.’s Chachahuen exploration field, Clarin newspaper reports, citing Mendoza daily Los Andes. YPF shared the field with Vila Manzano group. Mendoza may offer the area to another company in auction.
  • U.S. hot rolled coil (HRC) steel prices fall for a third straight week. The CRU Weekly Price assessment shows US HRC at $677 per short ton, down $6 per ton from last week, on a rise in supply from increased production and imports. This follows a fall of $2 per ton last week.
  • Copper fell 2.4 percent this week as China began an investigation into the use of copper collateral for multiple loans, prompting fears of inventory release into the market.


  • Meeting the world’s energy supply needs by 2035 will require $40 trillion of investment, as demand grows and production and processing facilities have to be replaced, the International Energy Agency said.  More than half of that amount will be needed to compensate for declining output at mature oil and gas fields, and the remainder for finding new supplies to meet rising demand, the Paris-based agency said in a report this week.
  • BHP Billiton Ltd., the world’s largest mining company, flagged more investment in energy and fertilizer, while scaling down spending on steelmaking raw materials as China’s economy switches gears toward consumption rather than fixed asset investment.
  • China is working on how to cap its greenhouse gas emissions for the first time, an effort that would spur a worldwide effort to hold back climate change. The world’s biggest producer of fossil fuel emissions has been studying for more than a year how and when it might be able to make its pollution levels peak and hopes to act as soon as possible, said Xie Zhenhua, China’s lead envoy to the United Nations global warming talks. “China will behave in a very responsible way for Chinese people and the world and we will try our utmost to peak as early as possible,” Xie said yesterday in an interview at the talks in Bonn with Bloomberg and other news organizations. “We are working very hard and trying to find a balanced equilibrium between environmental protection and economic development.”


  • China’s Qingdao port halted shipments of aluminum and copper due to an investigation by authorities, causing concern among bankers and trade houses financing the metals, with approximately 80,000 tons of aluminum ($150 million current market value) and 20,000 tons of copper (about $140 million) claimed to be missing from warehouses. The port of Qingdao is China’s third-largest foreign trade port and the world’s seventh-largest port.

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Emerging Markets


  • China’s official manufacturing Purchasing Manager’s Index (PMI) came out slightly higher than expected at 50.8 in May from 50.4 in April, thanks to improving new orders and production with moderating deflationary pricing pressure on upstream industrial goods. Selective government policy easing measures recently may have contributed to the sequential stabilization.
  • India’s benchmark stock-index rose the most in three weeks, led by industrials and banks, after the PMI reached a three-month high of 51.4 in May. A Ministry of Commerce and Industry report released the same day showed April monthly data for key industries was surprisingly high as coal production rose 3.3 percent, steel production rose 3.1 percent and power generation rose a staggering 11.2 percent.
  • Hungary’s April industrial-output growth unexpectedly accelerated at the fastest pace in three years to 10.1 percent, thus surpassing the median estimate of 7 percent growth. The largest growth driver is carmakers’ production boost to the fastest pace in eight years.


click to enlarge

  • People’s views of Russia have strongly deteriorated since last year among people across all continents, according to a BBC poll. Negative views of Russia now average 45 percent across the countries polled, having gone up four points since 2013. In Russia, locals have turned more hostile towards the West than at any time since the breakdown of the Soviet Union, according to a recent independent poll. The change is arguably a result of a pro-Russian campaign to influence public opinion. The Kremlin’s state ideology is determined to self-isolate Russia from the Western world, effectively ending any hope for the country’s modernization.
  • The HSBC Poland manufacturing PMI for Poland fell to 50.8 points in May, an 11-month low, from 52.0 in April, but still in expansionary territory. Polish exports orders declined after Russia imposed a ban on Polish pork and milk processing plants imports which Polish officials said was politically motivated. Poland has emerged as one of the staunchest supporters of Kiev and strongly condemned Russia’s annexation of Ukraine’s Crimea.
  • Hong Kong’s retail sales declined by 9.8 percent year over year in April, a third consecutive month of retreat, led by a 39.9 percent year over year drop in jewelry and luxury category associated with an unusually high base a year earlier when gold purchases surged 68.5 percent in April 2013 in response to slumping bullion prices.


  • In an expected yet unorthodox decision, the European Central Bank (ECB) cut deposit rates to negative territory, meaning banks will have to pay to place deposits with the ECB. The cut was expected because, as John Clemmow of Barclay’s pointed out this week, sovereign bond rates are simply a function of tax revenues and the stock of debt. Forget inflation and monetary theory. If tax receipts are rising at a slower rate than debt issuance, then interest rates must fall because the debt must be serviced. The chart below, using World Bank data, shows debt service as a percentage of tax revenues is near constant in the G7 countries. Clemmow concludes that (1) future interest rates are a function of the debts of the past, and (2) the ECB will do what it takes because European monetary policy is not decided by the desires of the Germans but rather by the needs of the periphery. The result will be lower rates and a convergence of peripheral yields which largely benefit peripheral European banks.

click to enlarge

  • China is set to accelerate efforts to clean up its environment. According to its 2013 Report on State of the Environment released this week, only three out of 74 cities which adopted revised air quality standards met the target last year. This could make Chinese policymakers even more determined to execute its coal consumption reduction plan through 2017, a major source of air pollution. Industry leaders in the clean energy sector should continue to benefit from policy support.

click to enlarge

  • Protesters in Thailand have been seen adopting the three-fingered salute from the film “Hunger Games” as a mark of silent defiance against the military government. The gesture is quickly becoming a symbol of silent protest against the military leaders who took control of Thailand in a coup on May 22, instituting martial law. Thousands of people took to the streets over the weekend, calling for democratic elections in a stunning example of protesters embracing values promoted by the U.S. Constitutional Rights to Life, Liberty and Pursuit of Happiness.


  • According to Credit Suisse, Chinese households have started reducing property exposure and are expected to lower it from 55 percent of total wealth in 2013 to 47 percent in 2018, assuming stable housing prices. Deteriorating sentiment toward Chinese residential property oversupply in lower-tier cities, coupled with a peak in the maturity of wealth management products in the second half of this year, only adds to volatility of property-developer stocks in the near term.
  • Foreign direct investment flows to Russia will fall to half of last year’s level in 2014 as the conflict with Ukraine prompts companies to delay expansion, the Vienna Institute for International Economic Studies said. Russian foreign direct investment (FDI) is expected to fall to $41 billion the steepest decline in all of Eastern Europe. On a good note, the 11 Eastern European Union (EU) members will attract 21.6 billion euros this year, nearly doubling the inflows recorded in 2013.
  • Egyptian shares plunged earlier in the week after the government said it will tax investor profits, only a day after the presidential election concluded. The African country, which is home to the highest budget deficit in the Middle East, will tax net portfolio values at the end of the year. The bourse statement on the planned tax did not specify the rate that would be levied or when the law would be passed.

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A Blog by Frank Holmes, C.E.O. and Chief Investment Officer

Leaders and Laggards

The tables show the weekly, monthly and quarterly performance statistics of major equity and commodity market benchmarks of our family of funds.

Weekly Performance
Index Close Weekly
DJIA 16,924.28 +207.11 +1.24%
S&P 500 1,949.44 +25.87 +1.34%
S&P Energy 703.13 +9.67 +1.39%
S&P Basic Materials 312.84 +3.91 +1.27%
Nasdaq 4,321.40 +78.78 +1.86%
Russell 2000 1,165.21 +30.71 +2.71%
Hang Seng Composite Index 3,152.98 -2.96 -0.09%
Korean KOSPI Index 1,995.48 +0.52 +0.03%
S&P/TSX Canadian Gold Index 171.97 +2.00 +1.18%
XAU 86.70 +1.64 +1.93%
Gold Futures 1,252.40 +6.40 +0.51%
Oil Futures 102.79 +0.08 +0.08%
Natural Gas Futures 4.72 +0.17 +3.83%
10-Yr Treasury Bond 2.59 +0.11 +4.48%


Monthly Performance
Index Close Monthly
DJIA 16,924.28 +405.74 +2.46%
S&P 500 1,949.44 +71.23 +3.79%
S&P Energy 703.13 +7.62 +1.10%
S&P Basic Materials 312.84 +10.60 +3.51%
Nasdaq 4,321.40 +253.73 +6.24%
Russell 2000 1,165.21 +56.66 +5.11%
Hang Seng Composite Index 3,152.98 -332.01 -14.83%
Korean KOSPI Index 1,995.48 +55.60 +2.87%
S&P/TSX Canadian Gold Index 171.97 -8.69 -4.81%
XAU 86.70 -3.33 -3.70%
Gold Futures 1,252.40 -36.90 -2.86%
Oil Futures 102.79 +2.02 +2.00%
Natural Gas Futures 4.72 -0.02 -0.51%
10-Yr Treasury Bond 2.59 -0.00 -0.04%


Quarterly Performance
Index Close Quarterly
DJIA 16,924.28 +471.56 +2.87%
S&P 500 1,949.44 +71.40 +3.80%
S&P Energy 703.13 +62.97 +9.84%
S&P Basic Materials 312.84 +11.95 +3.97%
Nasdaq 4,321.40 -14.82 -0.34%
Russell 2000 1,165.21 -38.11 -3.17%
Hang Seng Composite Index 3,152.98 +5.04 +0.16%
Korean KOSPI Index 1,995.48 +20.80 +1.05%
S&P/TSX Canadian Gold Index 171.97 -28.95 -14.41%
XAU 86.70 -13.94 -13.85%
Gold Futures 1,252.40 -86.40 -6.45%
Oil Futures 102.79 +0.21 +0.20%
Natural Gas Futures 4.72 +0.10 +2.12%
10-Yr Treasury Bond 2.59 -0.20 -7.21%

Please consider carefully a fund’s investment objectives, risks, charges and expenses.   For this and other important information, obtain a fund prospectus by visiting 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 Emerging Europe Fund invests more than 25 percent 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.

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.

Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5 percent to 10 percent of your portfolio in these sectors.

Bond funds are subject to interest-rate risk; their value declines as interest rates rise. 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. The Near-Term 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. The Near-Term Tax Free Fund 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.

Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.

Past performance does not guarantee future results.

Some link(s) above may be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

These market comments were compiled using Bloomberg and Reuters financial news.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings as a percentage of net assets as of 3/31/2014:

Beijing Enterprises Water Group Ltd.: China Region Fund, 2.03%
China Everbright International Ltd.: China Region Fund, 2.61%
YY Inc.: China Region Fund, 1.90%
Paradise Company Ltd.: China Region Fund, 2.29%
NagaCorp Ltd.: China Region Fund, 2.96%
AT&T Inc.: All American Equity Fund, 1.08%
Bank of America Corp.: All American Equity Fund, 3.31%
J.P. Morgan Chase & Co.: 0.0%
Citigroup Inc.: 0.0%
Joy Global Inc.: 0.0%
Caterpillar Inc.: 0.0%
Broadcom Corp.: 0.0%
Verizon Communications Inc.: All American Equity Fund, 0.92%
Wynn Resorts Ltd.: All American Equity Fund, 1.71%
PVH Corp.: 0.0%
B2Gold Corp.: Gold and Precious Metals Fund, 3.14%; World Precious Minerals Fund, 2.05%
Papillon Resources Ltd.: 0.0%
Centerra Gold Inc.: Gold and Precious Metals Fund, 1.11%; World Precious Minerals Fund, 0.61%
Klondex Mines Ltd.: Gold and Precious Metals Fund, 6.31%%; World Precious Minerals Fund, 6.71%; Global Resources Fund, 1.19%
Timmins Gold Corp.: Gold and Precious Metals Fund, 0.35%
Detour Gold Corp.: Gold and Precious Metals Fund, 4.82%; World Precious Minerals Fund, 1.76%
Newmont Mining Corp.: Gold and Precious Metals Fund, 0.12%; World Precious Minerals Fund, 0.11%
Pacific Rubiales Energy Corp.: Global Resources Fund, 0.25%;
Goodrich Petroleum Corp.: Global Resources Fund, 1.13%
YPF SA: 0.0%
BHP Billton Ltd.: 0.0%

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.
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.
The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.
The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver.
The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns.
The ISM manufacturing composite index is a diffusion index calculated from five of the eight sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms from 21 industries in all 50 states.
The HSBC Flash China Manufacturing PMI is published a week ahead of the final HSBC China PMI every month. It analyzes 85-90 percent of the responses to the Final PMI from purchasing executives in more than 400 small, medium and large manufacturers, both state-owned and private enterprises.
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.