U.S. Global Investors Searching for Opportunities, Managing Risk

Transcription

1 U.S. Global Investors Searching for Opportunities, Managing Risk Searching for Signs of Recovery Frank Holmes, CEO and Chief Investment Officer US.FUNDS June

2 Government Policy Model Precursor for Change 2

3 E7 and G7 Population vs GDP 3

4 E7 Countries 4

5 G7 Countries 5

6 High Correlation of Oil and Money Supply Government will continue to print money, like the recent bailout of Fannie Mae and Freddie Mac, to support the economy 6

7 Monetary Policy 7

8 Monetary Policy 8

9 Demographics is the key Half of the global population (>3 billion) is estimated to live in urban areas Projected urban population is larger than the entire world population in

10 Demographics is the key 10

11 BRIC Summit Yekaterinburg, Russia June Indian Prime Minister Manmohan Singh Russian President Dmitry Medvedev Chinese President Hu Jintao Brazilian President Luiz Inacio Lula da Silva 11

12 Household consumption contribution to nominal USD global GDP growth: BRIC vs U.S. 12

13 Auto Sales, BRIC vs U.S. 13

14 Car Ownership Will Rise in Asia... Less than 5% of the population has a car in China versus a 74% penetration in the U.S. Much lower penetration in India with lower per capita income Car penetration shoots up as per capita income crosses US$3,000 14

15 Generally Comfortable Public Debt Levels Japan s public debt at around 200% of GDP India at 80% and the Philippines at 65% may be constrained China s public debt is low and enjoys high national savings 15

16 $800 billion in Asia s regional stimulus Ex-Japan, stimulus plans are worth more than $800 billion (11% of regional GDP); almost 60% involves infrastructure spending We expect a boost of 25% in Asian infra spending this year, primarily in China, but also Korea, Singapore, Malaysia India is constrained by high public sector debt, however good election results for infrastructure spending policies 16

17 $800 billion in Asia s regional stimulus In the next five years, there will be $2.5 trillion infrastructure spending for Asia ex-japan (a 15% CAGR) The global downturn impacts current infrastructure needs, e.g., power generation and ports Longer-term needs remain, e.g., road, rail, green energy 17

18 Uneven Growth in Infrastructure Spending China projected for 36.5% Year-over-Year growth in infrastructure spending in 2009, but is moderating into 2010 Other countries, including Korea, Singapore, Malaysia, will see higher growth in 2010 Infrastructure investment in India is likely to drop this year 18

19 China Almost 70% of Regional Infrastructure Spend China accounts for the bulk of infrastructure spending, investing around 6% of GDP for infrastructure investments India accounts for just 12% of regional infrastructure spending Korea, Taiwan, Thailand are the next most significant 19

20 China s Heavy Focus on Infrastructure Investment China leads with infrastructure investment at about 6% of GDP India s estimated infrastructure investment at less than 4% of GDP Indonesia s infrastructure investment at only about 1% of GDP 20

21 Transport Dominates Infrastructure Plans Roads and rail comprise almost half of the region s infrastructure spending Power, together with utilities, account for 35% of estimated infrastructure spending Composition varies by country, e.g., China is investing more on rail than roads, but India the opposite Source: CLSA Asia-Pacific Markets 21

22 Inward looking 22

23 China sector breakdown of spending 23

24 High speed rail network planned and operating 24

25 Intercity rail links 25

26 Geographical distribution of airports 26

27 Taiwan: Visitor arrivals from mainland China 27

28 Transport network planned under i-taiwan auspices Ma Ying-jeou, President of Taiwan 28

29 India: 2009 general election results good for business Manmohan Singh, Prime Minister of India 29

30 Proposed ultra mega power projects 30

31 Long-Term Power Demand will Grow China s per capita power consumption is only 16% that of the U.S. India s is only 4% of per capita U.S. consumption As per capita income rises, power consumption will grow 31

32 A supersized inventory cycle Credit shock synchronized and amplified inventory cycle. Destocking phase has ended, industrial data have rebounded. But with inventories under control, what next? Existence of multiplier effects will be critical. We will need demand for products in Europe and America to sustain cycle. 32

33 A supersized inventory and credit contraction cycle U.S. forecast driven by deleveraging in a weak nominal growth environment. U.S. socialistic, protectionist policies could cause another downdraft. Cycle trough could be postponed to

34 Once in 60-year event for manufacturing orders 34

35 Inventory cycle expressed through trade 35

36 And industrial production 36

37 Utilization and overtime pay both collapsed 37

38 In China also 38

39 Deflation in Chinese manufacturing wages 39

40 End of destocking has seen activity recover 40

41 Developed markets dominate global demand 41

42 Need to see sustainable traction in the U.S. 42

43 Deflationary forces: Wage growth continues to decelerate 43

44 Profits have not yet bottomed 44

45 Deflationary forces: The market is clearly saying produce less as it finds a new equilibrium 45

46 China: Average daily residential apartment sales 46

47 The big rush to buy condos 47

48 Trend is your friend 48

49 China: CSI 300 Index Enduring the Global Financial Crisis Webcast 10/16/08 49

50 World view Good expectations are rising 50

51 China Reality Research food price index Important for social stability 51

52 Banking Banks clearly responding to Party orders to lend Loan growth up everywhere, still tight to developers Small & Medium Enterprise lending up sharply in late 1Q (mostly for working capital) April new lending was just shy of Rmb600bn. Government approach is purely pragmatic so banks will increase or rein in lending as necessary 52

53 What do small & medium enterprises need the money for? 53

54 China: New renminbi bank lending 54

55 MSCI AC Asia ex-japan Index trailing PE 55

56 Undervalued on price-to-book 56

57 Asia ex-japan and S&P 500 average daily turnover 57

58 MSCI AC Asia ex-japan Index Enduring the Global Financial Crisis Webcast 10/16/08 Frank Talk Strong Wind Hitting the Market Sails 58

59 Household debt as % of disposable income Gordon Brown sold UK s gold under $400/oz. 59

60 U.S. average weekly earnings 60

61 U.S. total debt as % of GDP 61

62 U.S. unemployment rate Cyclical and a lagging indicator 62

63 U.S. personal savings rate projection Fear causes savings to rise 63

64 Right Time for Gold Mining Stocks? What s Driving Gold Webcast 03/05/09 64

65 Gold stocks appear undervalued relative to gold bullion price 65

66 Gold/S&P 500 ratio Gold appears undervalued to the S&P

67 Gold seasonality 67

68 Oil seasonality 68

69 Copper seasonality 69

70 U.S. Money Supply vs Credit Growth heading in different directions is a big risk 70

71 Good Intentions If people feel that there's so much government intrusion on compensation that it inhibits their ability to reward employees and compete, we're going to see fewer companies going public and more companies going private. Also, many companies may leave the U.S. and go elsewhere to be out from under government policies. Ken Feinberg, the new pay czar. Larry Fink, BusinessWeek Interview, June 16 71

72 Come visit us at Facebook: Search for U.S. Global Investors Twitter: Frank Talk: /franktalk Investor Alert: /alert 72

73 Disclosures All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. 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 ISM New Orders Index is prepared by the Institute of Supply Management and is an indicator of the levels of new orders from Customers. The ISM Production Index is prepared by the Institute of Supply Management and is an indicator of the levels of production. The China Purchasing Managers' Index, a gauge of nationwide manufacturing activity, is issued by the China Federation of Logistics & Purchasing and co-compiled by the National Bureau of Statistics. The Producer Price Index (PPI) measures prices received by producers at the first commercial sale. The index measures goods at three stages of production: finished, intermediate and crude. The CSI 300 is a market capitalization weighted index which maps the performance of the 300 of the most highly liquid A shares on the Shanghai and the Shenzhen Stock Exchanges. The MSCI Asia ex-japan Index is a free float-adjusted, capitalization-weighted index measuring the performance of all stock markets of China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand, India and Pakistan. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Toronto Stock Exchange Gold and Precious Minerals Index is a capitalization-weighted index designed to measure the performance of the gold and precious minerals sector of the TSX 300 Index. The AMEX Gold Bugs Index (HUI) is a modified equal-dollar weighted index of companies involved in major gold mining. The China Reality Research Property Sales Index tracks more than 120+ projects in 40+ cities across China. The index tracks monthly sales, average price and the level of visitor traffic to showrooms compared with the previous month. The China Reality Research Food Price Index tracks price movements for food products in China. The index follows weekly price changes for pork, rice, eggs, vegetables and chicken around China. 73