How these 12 TPP Nations Could Forever Change Global Growth

Author: Frank Holmes
Date Posted: October 9, 2015 Read time: 50 min

These are among many of the words that have been used lately to describe the Trans-Pacific Partnership (TPP) trade pact, which was finally signed in Atlanta this Monday by 12 participating Pacific Rim nations.

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

Historic. Landmark. Groundbreaking. Revolutionary.

These are among many of the words that have been used lately to describe the Trans-Pacific Partnership (TPP) trade pact, which was finally signed in Atlanta this Monday by 12 participating Pacific Rim nations.

The current members include Canada, the United States, Mexico, Peru, Chile, Japan, Vietnam, Malaysia, Brunei, Singapore, Australia and New Zealand.

runners on the starting line

After nearly seven years of negotiations, the TPP promises to deliver unprecedented free and fair global trade among the 12 participant nations.

Once ratified by each country’s congress or parliament—which is likely to happen in early 2016—the accord will become the most significant, most economically-impactful trade deal in history. As many as 18,000 tariffs are expected to be eliminated. It will remove barriers to foreign investment, streamline customs procedures and create an international investor-state dispute settlement (ISDS) system, among much more.

Global Purchasing Managers' Index Continues to Deteriorate
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The Peterson Institute for International Economics, a Washington, D.C.-based think tank, predicts that the resultant savings could boost the world economy by an incredible $223 billion by 2025.

Today, the 12 members control more than a quarter of all global trade, representing close to $10 trillion. But it’s estimated that once the TPP goes live, the trade percentage could climb to as high as 50 percent, according to CLSA.

The trade pact couldn’t have come at a better time. Global growth is slowing, and mounting tariffs threaten to suffocate trade. Even though the TPP’s full implementation is months and, in some cases, years away, it’s encouraging to know that positive change is on its way.

Having said that, no one knows the full details yet and it might be a while before we can see the official documents. When that time comes, we’ll be analyzing the deal to see which countries, industries and sectors stand to benefit the most. And of course the pact has already become the subject of criticism, targeted specifically at how it handles pharmaceuticals and intellectual property.

All in all, however, the world has needed such an agreement for years now to bring unilateral trade liberalization into the 21st century.

China Misses First-Mover Advantage but Isn’t out of the Race

The most notable player missing-in-action is China, and to a lesser extent Korea, both of which have taken a “wait and see” attitude. That will likely change in the coming years. China sat this round out because the trade deal would have imposed several stringent economic, labor and environmental conditions on the Asian giant, as it does on all TPP nations.

a penny-farthing economy o a precarious ride: governments must learn to balance monetary and fiscal policies to remain competitive globally

But China and Korea will doubtlessly have little choice but to join the team once they see the enormous benefits enjoyed by participating countries. China’s southern neighbor Vietnam, for instance, is expected to see a huge 10 percent boost in its GDP by 2025—twice as much as any other Asian market—according to Credit Suisse. Malaysia, a 5 percent boost.

The business relationship between the U.S. and China—the world’s two largest economies—grows stronger every day, and China doesn’t want to see its competitive edge dulled by other Asian countries that chose to be members of the TPP.

Here in Texas, where a lot of public signage is written in both English and Spanish, I’m starting to see more and more Mandarin, an indicator that U.S.-China relations are strengthening. The picture of the ad, which I took at the San Marcos Premium Outlets mall just north of San Antonio, is clearly targeted to Chinese tourists. It’s an ad for China Merchants Bank and reads: “In America, use Merchants Bank credit card! Very American!”


Vietnam Will See the Biggest Long-Term Economic Benefits

“Very American,” indeed. To be clear, the real winner in the formation of the TPP is the U.S., for whom the deal is as much about geopolitics as it is about trade. In a briefing this week, the National Bank of Canada writes that the TPP “would allow the United States to take the lead in setting the rules of commerce for about 40 percent of the global economy.”

But as I said, Vietnam is poised to see the biggest upside potential as a result of the deal. The Southeast Asian country is a large manufacturer and exporter of textiles, apparel and footwear, all of which the U.S. currently imposes a very high 17 percent duty on. That’s set to disappear, saving the country billions. Because foreign investment in Vietnam is expected to accelerate under the deal, banks, consumer goods and construction are also set to benefit.

Global Purchasing Managers' Index Continues to Deteriorate
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Malaysia is another country that stands to see sweeping changes. Right now the country doesn’t have a trade agreement with the U.S., Canada, Mexico or Peru. Once the deal is ratified and implemented, Malaysia’s vital palm oil, rubber, plywood, electronics, textile and automotive parts industries will be open for business to some of the world’s largest economies.

As for Japan, its all-important $538 billion auto industry will receive a huge shot in the arm. Consultancy firm Eurasia Group estimates that the TPP could help add $105 billion to Japan’s GDP by 2025.

Say It with Me: Government Policy Is a Precursor to Change

Not only is the Trans-Pacific Partnership great for global trade but it also promises to help bring fiscal and monetary policies into balance. The deal is a welcome and much-needed development from a fiscal perspective that we haven’t seen from world governments in more than a generation. Lately, everything’s been about monetary policy—specifically quantitative easing and currency manipulation—to stimulate growth.  A reduction in taxes, tariffs and regulation also promotes growth.

Top 10 Most Competitive Countries, According to the World Economic Forum
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Here at U.S. Global Investors, we often say it’s the policy, not the party, that really matters. Republicans, Democrats and Independents alike are all capable of effecting change that can both move the U.S. forward as well as set it back.

On President Barack Obama’s watch, many new restrictive rules and regulations have been enacted in the U.S. that clog up the flow of capital like cholesterol and hinder business growth and innovation. I’ve written and spoken about these policies on many occasions.

At the same time, we must acknowledge that he’s been one of the most fervent champions for the creation of the TPP, even going so far as to stand up against several prominent members of his own party. I’m certain that in the decades to come, the TPP will emerge as the Obama administration’s crowning foreign policy achievement.

What the Influencers Are Saying

I’d like to end by sharing some compelling comments on the TPP by key policymakers, business leaders and economists. Their optimism should convince anyone that the TPP, once ratified, could end up being the best thing to happen to global trade in at least a generation.

To my Canadian friends and readers, I wish you a happy and blessed Canadian Thanksgiving!

Malaysia currently puts a 30 percent tax on American auto parts. Vietnam puts a tax of as much as 70 percent on every car American automakers sell in Vietnam. Under this agreement, all those foreign taxes will fall. Most of them will fall to zero. So we are knocking down barriers that are currently preventing American businesses from selling in these countries and are preventing American workers from benefiting from those sales to the fastest-growing, most dynamic region in the world.

U.S. President Barack Obama

This agreement in my view is truly transformational. To have one set of rules for 12 destinations is going to turbo charge regional supply chains and global supply chains and reduce costs.

Australia Minister for Trade and Investment Andrew Robb

Free-trade agreements create new opportunities for American companies and their workers. I thank the United States Trade Representative and fellow trade negotiators for their commitment to finalizing this agreement. U.S. companies need to be able to compete and win in global markets to support well-paying jobs at home. It’s critical we provide our manufacturers and exporters with the best tools to compete on a level-playing field in markets worldwide.

Boeing President and CEO Dennis Muilenburg

In many parts of the world, food and agricultural products still face the legacy of high import barriers. We believe the Trans-Pacific Partnership will allow food to move more freely across borders from places of plenty to places of need, which benefits farmers and consumers around the world.

Cargill Chairman and CEO David MacLennan

Canada’s mining industry has been a strong advocate for liberalized trade and investment flows for many years. NAFTA, free trade agreements with Chile, Peru, Colombia and other countries in Latin America, Africa and Asia have all helped to increase Canadian exports and investment, supporting jobs for Canadians here and abroad. TPP, representing such a massive trade block, including critical emerging markets, is a trading partnership Canada must not risk being left out of.

Mining Association of Canada President and CEO Pierre Gratton


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Index Summary

  • The major market indices finished up this week.  The Dow Jones Industrial Average gained 3.72 percent. The S&P 500 Stock Index rose 3.26 percent, while the Nasdaq Composite climbed 2.61 percent. The Russell 2000 small capitalization index gained 4.60 percent this week.
  • The Hang Seng Composite gained 4.36 percent this week; while Taiwan was up 1.70 percent and the KOSPI rose 2.53 percent.
  • The 10-year Treasury bond yield rose 9 basis points to 2.09 percent.

2015 Grow Fiscal Year Replay

Domestic Equity Market

S&P 500 Economic Sectors
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  • As a result of strengthening WTI crude oil prices, energy was the best performing sector on a relative basis, up 7.7 percent for the week versus 3.3 percent for the S&P 500 Index. WTI closed at $49.52 for the week, but breached $50 per barrel for the first time since July.
  • Freeport-McMoRan was the best performing stock in the S&P 500 this week, up 27 percent as investor sentiment toward global growth improved and mining improved following Glencore’s plans to pay down debt. Copper also finished strong at $2.41 per pound.
  • Basic materials beat the S&P 500 this week, returning 6.8 percent compared to 3.3 percent, driven by strong oil prices and improved growth expectations.


  • The health care sector had a tough week, ending as the worst performer with a return of 0.25 percent amongst recent political rhetoric.
  • Utilities trailed the broader market as money flows moved into more cyclical sectors.  The S&P 500 Utilities Index gained 1.1 percent during the week.
  • Telecommunications, consumer discretionary and financials all lagged the S&P 500 this week, all returning 2.4 percent compared to the S&P 500 which returned 3.3 percent.


  • Consumer price index (CPI) data reports are scheduled to be released next Thursday and will likely show a decline in prices as Americans are paying less at gas pumps. Consumer discretionary has benefited from low gas prices as consumers have more flexibility with spending.
  • The launch of Windows 10 as a free upgrade to current Microsoft OS users may impact sales of personal computers and lead to an increase in market share, both at the corporate and consumer level.
  • Capital markets stocks may have the potential for a positive surprise. BCA Research suggests that cheap valuations coupled with no recent indication that earnings trouble is ahead, along with more accessible credit for M&A activity, are positive signs for the market.


  • Chemical stocks have had a tough year. The industry’s inability to adjust to the decrease in global manufacturing, as well as chemical inventories growth, is pushing pricing power into the deflationary zone.
  • The University of Michigan Consumer Confidence report could show stronger-than-expected findings, which the Federal Reserve may use as a data point to raise interest rates sooner than expected.
  • Cyclical stocks that were laggards in the prior quarter have been outperforming recently, but could slow moving forward if economic data weakens and commodity prices retrace their recent gains.

China Second Largest Economy Slideshow

The Economy and Bond Market

Global markets rebounded this week, relieved that September’s disappointing U.S. payrolls report could mean an extended period of low interest rates. Weaker U.S., U.K. and German export data underscores the need for more supportive central bank policies to counter global economic weakness. Amid a general rally in commodities, crude oil prices rose on expectations of a cutback in U.S. production, trading on Friday around $50 and $53 per barrel for WTI and Brent, respectively. The yield on the U.S. 10-year Treasury note moved back above 2.10 percent. The Chicago Board Options Volatility Index (VIX) fell below 18, reflecting improved investor confidence and ending its first month-long stretch above 20 since 2012.

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  • A final agreement on the Trans-Pacific Partnership was reached earlier this week concluding almost a decade of negotiations. This free trade agreement creates an economic alliance between the U.S., Japan and 10 other countries around the Pacific Ocean that account for two-fifths of world GDP and one-third of global trade. The U.S. has free trade agreements already with six of the 12 countries involved, but lacked one with economic powerhouse Japan.
  • Initial jobless claims dropped to 263,000 in the week ending October 3, down from 276,000 in the prior week. This was better than expectations of 274,000 and brings firings down to the lowest level since mid-July. Considering the disappointing jobs data, continued low firings suggest that the recent slowdown in job growth is not an early sign of underlying weakness. It is not a clear cut signal given that it only represents one side of the jobs equation.
  • The IBD/TIPP Economic Optimism Index rose to 47.3 from the previous reading of 42, beating expectations of 44.5. This demonstrates continued optimism in the U.S. economic recovery.


  • Notable in the September FOMC minutes was the growing downside risks to low inflation. More than half of the FOMC participants now see both headline and core PCE inflation risks weighted to the downside, a reversal of the views in June. This lowers the odds of a rate hike in October.
  • The trade deficit widened notably to $48.3 billion in August from $41.8 billion in July. This was worse than expectations of $48.0 billion. The advance trade report a week ago gave an early warning of sharp deterioration in the goods balance, which fell to -$67.9 billion from $61.3 billion. Goods exports plunged 3.2 percent month-over-month (MoM), while imports jumped 1.3 percent.
  • The ISM Non-Manufacturing Business Index dropped to 56.9 in September from 59.0 in August, which was modestly below market expectations of a decrease to 57.5. This level is still consistent with robust growth on the services side of the economy, however, and follows the two strongest months so far in this recovery in August and July.


  • The University of Michigan Consumer Sentiment report to be released next Friday will be an important signal of whether asset volatility continues to affect the consumer mindset. The report is expected to come in at 89, above the prior reading of 87.2.
  • Consumer delinquencies continue to slide across a wide range of loan categories, according to the American Bankers Association. Job gains and cheaper gas are boosting disposable income, and consumers continue to impress with their ability to manage debt prudently and keep spending under control. A drop in late home equity loan payments has led the declines.
  • OPEC publishes its Monthly Oil Market Report on Monday. The latest comments from the organization’s president cited that the record drop in upstream investment would result in less supply in the short-term. A confirmation of this in Monday’s report could support higher prices.


  • Weakness in global demand is beginning to affect the U.S. real economy. As such, the coming months are likely to bring disappointing economic data, which will challenge the consensus that the U.S. economy can continue to decouple from the rest of the world. As a result, if the Federal Reserve’s tone meaningfully shifts to a more dovish stance, yields are likely to continue heading lower, challenging the notion that they can move higher this year.
  • Several releases will help monitor how the tug of war between Chinese policy easing and the negative growth momentum is unfolding: Chinese external trade on Tuesday and consumer price index (CPI)/producer price index (PPI) data on Wednesday.
  • September U.S. PPI (Wednesday) and CPI (Thursday) will help shape expectations of a possible rate hike in October. The likelihood of continued softness would be a worrisome sign of the imbalance in emerging markets.

In the News

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Frank Holmes: A Rate Hike Would Disrupt Gold Prices and American Exports


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Gold Market

For the week, spot gold closed at $1,157.25 up $18.46 per ounce, or 1.62 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, gained 12.22 percent. Junior miners underperformed seniors for the week as the S&P/TSX Venture Index’s rose only 5.08 percent.  The U.S. Trade-Weighted Dollar Index fell 0.95 percent for the week.

Date Event Survey Actual Prior
Oct -8 US Initial Jobless Claims 274K 263K 277K
Oct -13 GE CPI YoY 0.00% 0.00%
Oct -13 GE ZEW Survey Current Situation 64 67.5
Oct -13 GE ZEW Survey Expectations 6.5 12.1
Oct -14 US PPI Final Demand YoY -0.80% -0.80%
Oct -15 US Initial Jobless Claims 270K 263K
Oct -15 US CPI YoY -0.10% 0.20%
Oct -16 EC CPI Core YoY 0.90% 0.90%


  • Platinum was the best performing precious metal, bouncing back 7.95 percent, as palladium took a backseat this week.  Traders had speculated that the Volkswagen’s emissions scandal might lead to increased demand for palladium should auto buyers shun diesel powered vehicles in favor of autos powered by gasoline engines that use more palladium in their catalytic converters.
  • Gold traders are the most bullish in three weeks on expectations that the Fed will hold off from raising interest rates until next year. The weak employment report last week ignited the recent rally which was buoyed this week by the release of the Fed’s September FOMC meeting notes which had a dovish tone. Gold advanced to a six-week high. 
  • China may have further increased central bank gold holdings in September, raising them by about 15 metric tons to 1,709 tons, as it seeks to diversify its foreign exchange reserves. China announced increases of about 19 tons for July and 16 tons for August after disclosing on July 17 that holdings had jumped by 57 percent since 2009. China has been reporting the value and tonnage of gold reserves monthly in a shift toward greater transparency as it promotes the global role of the yuan and seeks to join the IMF’s currency basket. Another recent positive aspect has been the signs of strength in the gold market even in the absence of Chinese physical demand with the markets closed there for the 7-day Autumn Golden Week holiday.


  • Despite this week perhaps being a turning point for gold, it rose the least out of all the precious metals.  Perhaps the week long holiday in China may have kept some buyers from bidding the market up higher.
  • Kinross Gold announced it is under investigation in the U.S. by the SEC and the Department of Justice about improper payments at West African facilities involving allegations that first arose in 2013 and the company was already investigating. The company received subpoenas requesting records of communications and payments to officials and contractors at the miner’s operations in Mauritania and Ghana.
  • Cornerstone Macro’s Carter Worth sees gold rising as weakness stopped “almost precisely” at the 50 percent retracement of the rally from $257/oz in 2001 to $1,920 in 2011. For stocks overall, he rejects the idea that the S&P 500 has successfully retested the August low. He said overall equities are under duress and headed lower given 44 percent of stocks in the S&P 500 have undercut their August 24 lows even though the index has not.


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  • The recent uptrend in gold could mean a positive full-year return by year end. According to Capital Economics, the headwinds for gold could be behind us, pointing to tighter labor markets and perhaps even inflation. Their report notes that inflation should snap back in most economies over the next few months as the big falls in oil prices in late 2014 drop out of the annual comparison. Their 2016 year end forecast is $1,400/oz.
  • Klondex provided an update on its Midas exploration drill program with notable intersections of multi-ounce per ton grades.  Interestingly, within the results was a non-vein intercept of 115 feet with an average grade of 2.3 g/t. This drilling has revealed a very different style of mineralization south of the Midas bonanza veins that have been mined to date. The new area is highly oxidized and while the grade is lower than at other drill locations, the breadth of the intersection creates the potential for substantial quantities of bulk ore to be mined should there be a surface scenario such as an open pit.
  • Comstock Mining reported significant drill intercepts at its Dayton Resource Area. The program, which consisted of 408 holes totaling 30,818 feet of drilling, resulted in several important discoveries, including defining multiple, previously undefined mineralized zones and additional dike-like masses of quartz porphyry. Separately, Integra Gold announced the discovery of new gold bearing zones at Lamaque South, including 22.64 g/t over 2.59 meters at No. 6 vein. This should further pique the interest of Eldorado Gold which recently purchased nearly 15 percent of the company.


  • According to Ruchir Sharma, who helps manage $25 billion as head of emerging markets at Morgan Stanley Investment Management, investors need to brace for a “long winter” with the commodities bear market predicted to last for many years and oil dropping to as low as $35 per barrel. Goldman Sachs has an even dimmer outlook. They said the odds are increasing that oil will slump near $20 because the market is more oversupplied than initially forecast. The investment bank also said prices could stay low for as long as 15 years.
  • Gold imports by India, the world’s second-biggest consumer, dropped 52 percent last month after shipments had surged in August. Shipments jumped in August as jewelers stocked up to meet a surge in demand during the festival and wedding season that started this month. The lack of investment demand is a cause for concern given the negative sentiment towards the asset class.
  • The Environmental Protection Agency appears to have rushed to judgment when it decided to preemptively block a proposed mine from being built near Alaska’s Bristol Bay, according to a yearlong review of the case by former Defense Secretary William Cohen. Cohen noted that the agency was “not fair” in its decision to rule out gold mining in the region before the developers had even applied for permits to build the mine.

Frank Talk Insight for Investors

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India Issues Its First Sovereign Gold Coin to Balance Gold Imports


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

Energy and Natural Resources Market


  • Base metals stocks continued to build on last week’s gains as the shakeout from Glencore’s debt issues and a recovery in the prices for copper, zinc and nickel helped producers rebound from extremely oversold conditions in the prior quarter.  The S&P/TSX Metals & Mining Index jumped an amazing 36 percent during the week.
  • Oil and gas exploration and production stocks pushed higher on the combination of a weaker U.S. dollar, recovering oil prices and expectations for domestic production declines going into next year.  The S&P/TSX Oil Exploration & Production Index increased 16 percent during the week.
  • Coal equities followed oil and natural gas stocks higher as sentiment improved across the entire hydrocarbon complex.  The Bloomberg U.S. Coal Index gained 17 percent over the last five days.


  • Construction materials stocks, leading for most of the year, trailed the natural resources sector as money flows moved into lagging subsectors (mainly mining and energy).  The S&P Construction Materials Index gained 0.70 percent this week.
  • Utilities lagged most resource sectors as investors became less risk adverse and rotated capital into more cyclical industries.  The S&P 500 Utilities Index gained 1 percent this week.
  • Oil refiners trailed their upstream counterparts on seasonal weakness and firmer crude oil prices.  The S&P 500 Oil & Gas Refining Index improved 3 percent over the prior five days.


  • According to bond giant Pacific Investment Management Co. (PIMCO), the route in commodity prices may be over and could see gains over the next 12 months, as low prices have rebalanced the market.

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  • Oil producers continue to reduce the number of rigs used in shale drilling.  Over the prior six weeks operators have sidelined 70 rigs, further setting expectations for a recovery in prices as production declines next year.
  • Glencore’s recently announced zinc mine closure, along with other industry shut-ins, could gain momentum as metals prices languish below the marginal cost of production, possibly leading to higher prices longer term. 


  • Sub-$50 per barrel crude oil prices could further stress balance sheets and borrowing limits as banks reassess credit lines this fall. This could negatively impact production growth forecasts.
  • Recent share price gains for commodity stocks may be at risk of a pullback as near-term supply and demand fundamentals have not materially improved yet. 
  • Net-short positions in the futures market reached an all-time high for natural gas as traders expect that lower prices are ahead for the winter heating fuel.

Frank Talk In Your InBox

China Region


  • Indonesia was the best performing market in Asia this week, after the Indonesian government announced the third of a series of stimulus packages targeted at the industrial companies to bring down their cost of production and boost profitability of energy heavy industries.  The Jakarta Composite Index rose 9.09 percent for the week.  
  • Energy was the best performing sector in Asia this week, rising in tandem with global energy stocks as crude oil prices staged a rebound from oversold levels. The MSCI Asia Pacific ex Japan Energy index advanced 10.54 percent for the week.
  • The Indonesian rupiah was the best performing currency this week, surging 9.2 percent against the U.S. dollar, due in part to rising crude oil prices and diminished prospects for a rise in U.S. interest rates before the end of the year.


  • Taiwan was the worst performing market in Asia this week, as its exports decreased 14.6 percent year-over-year in September, much weaker than market expectations.  This marks eight consecutive months of export decline for Taiwan.  The Taiwan TAIEX Index went up just 1.7 percent for the week.
  • Telecommunications was the worst performing sector in Asia this week, as defensive sectors lagged in general with a pickup in investor risk appetite.  The MSCI Asia Pacific ex Japan Telecom Index increased just 2.03 percent for the week.
  • The Japanese yen was the worst performing currency in Asia this week, falling 0.43 percent.  While Bank of Japan kept monetary policy unchanged during the October 6-7 meeting, market expectation remains alive for additional quantitative easing on October 30, the one-year anniversary since it expanded its QE program.


  • Vietnam should benefit most from the Trans Pacific Partnership trade deal signed this past Monday by twelve countries in an effort to revive global trade and investment.  As much as 10 percent boost to GDP growth is expected for Vietnam over the next decade, should the deal be ratified by each country’s legislative branch, given the country’s manufacturing wages at around half the level of China’s.  

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  • Recently, there has been a selloff of Asian textile makers due to concerns over rising inventories at U.S. and Japanese leisure and sportswear brands. This selloff may prove a short term profit-taking effect, and may and create buying opportunities for longer term investors. Industry fundamentals remain intact and those early movers with operations in Vietnam are set to reap benefits from preferential tariffs and quality inexpensive labor as more free trade agreements are reached over time.
  • Positive guidance by major Taiwanese semiconductor foundries this week regarding faster than expected inventory digestion should help with investor sentiment recovery towards Taiwanese and Korean electronics suppliers in the near term.


  • Despite a week of sharp rallies among Asian markets, net outflows of $2.2 billion from regional mutual funds and ETFs seem to suggest doubt among investors over the robustness of upcoming earnings season as well as how strong China’s September macroeconomic data appear in next week’s release. Disappointments on either front may question the sustainability of this countertrend rally.  
  • The sharp rally of Macau casino stocks might be unjustified, given the significant deceleration of mainland Chinese tourist arrivals in Macau to 7 percent year-over-year during this past Chinese National Day holiday week, from 17 percent for the same period last year.  While mass market gaming revenue might have stabilized and cost cutting might help increase profit margins, revenue from VIP customers still faces challenges in an industry whose valuation is not yet attractive.
  • Growth in Hong Kong tourist arrivals from mainland China has slowed to only 2 percent during this past Chinese National Day holiday week from 7 percent in 2014 and 18 percent in 2013.  A secular decline in Hong Kong’s popularity as a leisure travel destination has become unambiguous for China’s middle class, who increasingly prefer visiting different cultures farther away from home.

Emerging Europe


  • Russia was the strongest market this week, gaining 7.2 percent. Russian equites are highly correlated with Brent crude oil, as most of the country’s export sales revenue comes from the oil and natural gas industry. The correlation explains this week’s sharp rebound in Brent supporting Russian equities. Russian gas producer Gazprom gained 9.4 percent this week and oil producer Lukoil gained 12.2 percent. Economic data came out stronger than expected this week. Composite purchasing managers’ index (PMI) data for September came in at 50.9 versus the prior reading of 49.3. Inflation ticked down slightly to 15.7 percent from 15.8 percent.
  • Emerging market currencies appreciated strongly as prospects for a U.S. interest rate increase in 2015 receded and oil surged. The Russian ruble was the strongest currency, gaining 7.11 percent in the past five days.
  • The energy sector was the strongest performer within the emerging European countries this week. Energy equites shot up along with Brent gaining 9.9 percent.


  • Ukraine was the weakest performing market this week, losing 3.16 percent. Consumer price index (CPI) data fell to 51.9 percent from 52.8 percent in the month of September. Despite the latest decline, the reading remains at historically high levels since skyrocketing after the military conflict erupted. Ukraine will open talks with its Russian counterparts concerning its $3 billion euro bond maturing later this year.  Earlier this year Ukraine negotiated some haircuts on other euro bonds with different creditors, but Russia said that it won’t accept any write-downs on its debt.
  • Euro was the weakest currency this week, gaining 1.3 percent. The dollar slid lower, pushing Euro higher. Euro appreciated during this week but not as much as other emerging currencies which headed for the best week since 1998.
  • In a very strong up week, the utilities sector was the weakest within the emerging European countries.


  • The cost of funding within emerging markets is falling as demand for riskier assets is growing on speculation that the Federal Reserve may not be raising rates in the U.S. anytime soon. Poland, among other developing nation borrowers, sold its biggest euro-denominated note since 2014, raising 1.75 billion euros of six-year notes at 94 basis points. Norilsk Nickel, Russia’s biggest mining company, became the first in the country this year to sell euro bonds. Gazrpom sold 1 billion for its first euro bond in 11 months. Additionally, Turkey’s largest mobile operator Turkcell is looking to raise $500 million during this favorable time.

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  • A proposed tax increase on the Russian oil sector will be smaller than first anticipated. It will likely be limited to RUB 200 billion (Russian rubles) and only for one year, not as anticipated earlier with an additional tax in the amount of RUB 500-600 billion, from 2016-2018.
  •  Emerging Europe rebounded sharply in the past week from the low levels experienced following the third-quarter sell off. Further strength in commodities will also push equities higher.


  • Standard & Poor’s Rating Agency marginally raised its forecast for Turkey’s economic growth this year to 3.1 percent from 3 percent, but cut its next-year expectations to 2.8 percent from a previous 3.2 percent.  S&P predicts that the central bank of Turkey will increase its one-week repo rate from 7.5 percent to 8.5 percent next year.  This move should help the lira strengthen, but will put pressure on economic activity.
  • Germany’s trade surplus missed forecasts in August, as exports showed the steepest decline in almost seven years. Exports could be held back by the combination of a weaker global economy and an emerging markets slowdown. However, a weaker euro should make German goods more competitive outside of the eurozone.
  • Tensions are running high between Turkey and Russia after Russian jets allegedly violated Turkey’s airspace twice. In recent years, Turkey and Russia have made numerous deals to lift visa requirements, increasing trade to more than $32.7 billion, according to the Russian government. Large investments took place in the energy sector, with a deal signed for Russia to help build a $20-billion nuclear plant in Turkey. Russia is the biggest gas supplier to Turkey. However, under recent developments Tayyip Erdogan, the president of Turkey, suggested that the nuclear power plant can be built by someone else, and that Turkey could look for alternative gas suppliers.

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Leaders and Laggards

Weekly Performance
Index Close Weekly
DJIA 17,084.49 +612.12 +3.72%
S&P 500 2,014.89 +63.53 +3.26%
S&P Energy 506.18 +36.49 +7.77%
S&P Basic Materials 277.26 +17.59 +6.77%
Nasdaq 4,830.47 +122.70 +2.61%
Russell 2000 1,165.36 +51.24 +4.60%
Hang Seng Composite Index 3,091.74 +129.06 +4.36%
Korean KOSPI Index 2,019.53 +49.85 +2.53%
S&P/TSX Canadian Gold Index 140.23 +11.34 +8.80%
XAU 56.04 +7.02 +14.32%
Gold Futures 1,156.60 +20.00 +1.76%
Oil Futures 49.50 +3.96 +8.70%
Natural Gas Futures 2.52 +0.07 +2.77%
10-Yr Treasury Bond 2.09 +0.10 +4.76%


Monthly Performance
Index Close Monthly
DJIA 17,084.49 +830.92 +5.11%
S&P 500 2,014.89 +72.85 +3.75%
S&P Energy 506.18 +44.29 +9.59%
S&P Basic Materials 277.26 +9.74 +3.64%
Nasdaq 4,830.47 +73.94 +1.55%
Russell 2000 1,165.36 +17.13 +1.49%
Hang Seng Composite Index 3,091.74 +69.03 +2.28%
Korean KOSPI Index 2,019.53 +85.33 +4.41%
S&P/TSX Canadian Gold Index 140.23 +21.81 +18.42%
XAU 56.04 +11.56 +25.99%
Gold Futures 1,156.60 +54.60 +4.95%
Oil Futures 49.50 +5.35 +12.12%
Natural Gas Futures 2.52 -0.13 -4.98%
10-Yr Treasury Bond 2.09 -0.11 -5.13%


Quarterly Performance
Index Close Quarterly
DJIA 17,084.49 -675.92 -3.81%
S&P 500 2,014.89 -61.73 -2.97%
S&P Energy 506.18 -32.07 -5.96%
S&P Basic Materials 277.26 -22.16 -7.40%
Nasdaq 4,830.47 -167.23 -3.35%
Russell 2000 1,165.36 -86.67 -6.92%
Hang Seng Composite Index 3,091.74 -316.17 -9.28%
Korean KOSPI Index 2,019.53 -11.64 -0.57%
S&P/TSX Canadian Gold Index 140.23 -6.33 -4.32%
XAU 56.04 -2.97 -5.03%
Gold Futures 1,156.60 -3.60 -0.31%
Oil Futures 49.50 -3.24 -6.14%
Natural Gas Futures 2.52 -0.25 -9.06%
10-Yr Treasury Bond 2.09 -0.31 -12.89%

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.

Stock markets can be volatile and share prices can fluctuate in response to sector-related and other risks as described in the fund prospectus.

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. Though the Near-Term Tax Free Fund seeks minimal fluctuations in share price, it is subject to the risk that the credit quality of a portfolio holding could decline, as well as risk related to changes in the economic conditions of a state, region or issuer. These risks could cause the fund’s share price to decline. Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local taxes and at times the alternative minimum tax. 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.

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 9/30/15:

Freeport-McMoRan, Inc.: Global Resources Fund, 1.28%; Gold and Precious Metals Fund, 1.11%
Glencore plc: 0.0%
Microsoft Corp.: All American Equity Fund, 1.10%
Kinross Gold Corp.: 0.0%
Klondex Mines Ltd: Global Resources Fund, 3.79%; Gold and Precious Metals Fund, 16.91%; World Precious Minerals Fund, 17.76%
Comstock Mining, Inc.: Gold and Precious Metals Fund, 2.37%; World Precious Minerals Fund, 1.68%
Integra Gold Corp.: World Precious Minerals Fund, 0.63%
Eldorado Gold Corp.: Gold and Precious Metals Fund, 0.02%; World Precious Minerals Fund, 0.02%
Gazprom: Emerging Europe Fund, 4.29%
MMC Norilsk Nickel PJSC: Emerging Europe Fund, 2.22%
Turkcell Iletisim Hizmetleri AS: Emerging Europe Fund, 1.39%

*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 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.
The University of Michigan Confidence Index is a survey of consumer confidence conducted by the University of Michigan. The report, released on the tenth of each month, gives a snapshot of whether or not consumers are willing to spend money.
Chicago Board Options Exchange (CBOE) Volatility Index (VIX) shows the market’s expectation of 30-day volatility.
The Investor’s Business Daily (IBD) TechnoMetrica Institute of Policy and Politics (TIPP) Economic Optimism Index measures the mood of consumers in regard to economic conditions. The reading is derived from a monthly survey where 900 nationwide adults evaluate their "six-month economic outlook," "personal financial outlook," and their "confidence in federal economic policies." Index readings above 50 indicate optimism; below 50 indicates pessimism. When consumers are optimistic they tend to purchase more goods and services, which stimulates the economy.
The ISM Nonmanufacturing index based on surveys of more than 400 non-manufacturing firms’ purchasing and supply executives, within 60 sectors across the nation, by the Institute of Supply Management (ISM). The ISM Non-Manufacturing Index tracks economic data, like the ISM Non-Manufacturing Business Activity Index. A composite diffusion index is created based on the data from these surveys that monitors economic conditions of the nation.
The University of Michigan Consumer Sentiment Index is a survey on consumer attitudes and expectations in order to determine the changes in consumers’ willingness to buy and to predict their subsequent discretionary expenditures. This index is comprised of measures of attitudes
towards personal finances, general business conditions, and market conditions or prices.
The S&P/TSX Capped Metals and Mining Index is a capitalization-weighted index.
The Bloomberg United States Coal Index is a capitalization-weighted index of the leading coal stocks in the United States.
The S&P 500 Construction Materials Index is a capitalization-weighted index that tracks the companies in the construction materials industry as a subset of the S&P 500.
The S&P Oil & Gas Refining and Marketing Index tracks the market performance of downstream oil and gas companies.
The Jakarta Stock Price Index is a modified capitalization-weighted index of all stocks listed on the regular board of the Indonesia Stock Exchange.
The MSCI Asia Pacific ex Japan Energy Index is a free-float weighted equity index.
The TWSE, or TAIEX, Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
MSCI Asia Pacific ex Japan Telecom Index is a free-float weighted equity index.