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USFunds.com • August 28, 2015
Table of ContentsIndex Summary • Domestic Equity Market •
Economy and Bond Market • Gold Market
Energy and Natural Resources Market • Emerging Europe • China
Region • Leaders and Laggards • Fund Performance Link
China’s Economy Is Undergoing a Huge Transformation ThatNo One’s
Talking AboutBy Frank HolmesCEO and Chief Investment OfficerU.S.
Global Investors
The photo you see below was snapped recently in Beijing. It
might not be that special to some readers, but inmy 25 years of
visiting the Chinese capital, I’ve never seen a blue sky because
it’s always been blotted out byyellow smog. Beijing is clearly
undergoing a transformation right now. This might please proponents
of thegreen movement, but it’s ultimately harmful to the health of
the manufacturing sector.
On the other hand, blue skies could be ahead for China’s service
industries!
Misconception and exaggeration are circling China’s economy
right now like a flock of hungry buzzards. If youlisten only to the
popular media, you might believe that the Asian giant is teetering
on the brink of economicdisaster, with the Shanghai Composite
Index’s recent correction and devaluation of the renminbi held up
as“proof.”
Don’t get me wrong. These events are indeed significant and have
real consequences. They also make for some
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great, sensational headlines, as I discussed earlier this
month.
But what gets hardly any coverage is that China’s economy is not
weakening so much as it’s changing, likeBeijing’s skies. Take a
look at the following two charts, courtesy of BCA Research:
click to enlarge
You can see that the world’s second-largest economy has begun to
shift away from manufacturing and moretoward consumption and the
service industries. While the country’s purchasing managers’ index
(PMI) readinghas been in contraction mode since March of this year,
the service industries—which include financial services,insurance,
entertainment, tourism and more—are ever-expanding. The problem is
that the transformation hasnot been fast enough to offset the
massive size of the manufacturing sector.
Just as a refresher, the PMI is forward-looking and
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resets every 30 days. It helps investors manageexpectations.
Consider this: The best-performingcountry in our Emerging Europe
Fund (EUROX) isthe Czech Republic—which also happens to haveone of
the highest PMI readings! Coincidence?
Overseas travel, cinema box office revenue andecommerce in China
are all seeing “explosivegrowth,” according to BCA. The country’s
once-struggling real estate market is also robust. Thegovernment
just relaxed rules to permit moreforeigners to purchase mainland
property.
But you’d be hard-pressed to come across any ofthis constructive
news because it’s not particularlygood for ratings.
A recent Economist article makes this point veryclear:
The property market matters far more for China’s economy than
equities do. Housing and landaccount for the vast majority of
collateral in the financial system and play a much bigger role
inspurring on growth. Yet the barrage of bearish headlines about
share prices hasobscured news of a property rebound. House prices
have perked up nationwide for threestraight months. Two months
after the stock market first crashed, this upturn continues.
“Commodity Imports Have Actually Been Quite Strong”Again,
China’s transformation from a manufacturing-based economy to one
that focuses on consumption hasreal consequences, one of the most
significant being the softening of global commodity prices. As I
told DanielaCambone on this week’s Gold Game Film, gold’s Love
Trade has become not a No Trade, but a Slow Trade.We’ve seen demand
cool along with a decline in GDP per capita, the PMI readings and
China’s M2 moneysupply growth.
Below you can see the relationship between China’s M2 money
supply growth and metal prices. Since its peak inlate 2009, money
supply growth has been dropping year-over-year, driving down metal
prices.
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click to enlarge
Money supply growth tends to be a “first mover.” When it has
contracted, the PMI has usually followed.Recently, this has hurt
economies that depend on China as a net buyer of raw materials,
including Brazil, whichsupplies the Asian country with iron ore,
soybeans and many other commodities, and Austrailia.
click to enlarge
When M2 money supply growth and the PMIs are rising, commodity
prices can also rise. But that’s not what’shappening. It’s
important to recognize that when new orders for finished products
fall, there’s less consumptionof energy to manufacture and ship.
Again, this might make the greenies happy, but it’s ultimately bad
formanufacturing.
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I’ve said several times before that China is the 800-pound
commodities gorilla, and it continues to be so. Thecountry
currently consumes about a quarter of the total global output of
gold. For nickel, copper, zinc, tin andsteel, it’s around half of
world consumption. For aluminum, it’s more than half.
These are huge figures. But investors should know that Chinese
imports of these important metals andmaterials still remain strong.
Tom Pugh, a commodities economist at Capital Economics, told the
Wall StreetJournal this week that the market has it wrong about
China, that the drop in demand has been overstated:
If you look at Chinese commodity imports over the last few
months, they’ve actually been quitestrong. A lot of it is just that
people thought China would continue to grow at 10 percent a year,ad
infinitum, and now people are just realizing that’s not going to
happen.
Reuters took a similar stance this week, reporting that “there
were at least 21 commodities that showedincreases in imports
greater than 20 percent in July this year, compared to the same
month in 2014.”Weakening demand has been caused by a number of
reasons, including “structural oversupply” and “the impactof the
recent volatility in equity markets.”
But it’s important to keep things in perspective. Compared to
past major market crashes, China’s recentcorrection doesn’t appear
that bad.
Any bad news in this case can be seen as good news. I think that
in the next three months we might see furthermonetary stimulus,
following from the currency debasement nearly three weeks ago. We
might also see theimplementation of new reforms in order to address
the colossal infrastructure programs China has announcedin the last
couple of years, the most monumental being the “One Road, One Belt”
initiative.
Dividend-Paying Stocks Helped Stanch the LossesAs investors and
money managers, it’s crucial that we be cognizant of the changes
China is undergoing. Withvolatility high in the Chinese markets
right now, we’ve raised the cash level in our China Region
Fund(USCOX), and after the dust settles somewhat and the right
opportunities arise, we’ll be prepared to deploy thecash. We’re
also diversified outside of China.
We managed to slow the losses during the Shanghai correction by
being invested in high-quality, dividend-paying stocks.
According to daily data collected since December 2004, the
median trailing P/E ratio for the ShanghaiComposite Index
constituents currently sits at 48.6 times earnings. If it reverts
to the mean, risk is 32 percentto the downside for the index.
Currently, the P/E ratio of our China Region Fund constituents sits
around 16times. This suggests that USCOX has less downside risk and
is cheaper than the Shanghai Composite.
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click to enlarge
We seek to take advantage of the trend toward consumption by
increasing our exposure to the growing
serviceindustries—technology, Internet and ecommerce companies
(Tencent is one of our top 10 holdings); financialservices (AIA and
Ping An Insurance); and enviornmental services (wastewater
treatment services provider CTEnvironmental).
Rising sports participation among white collarworkers in China
is very visibile these days. XianLiang, portfolio manager of USCOX,
says that hisfriends back in Shanghai share with him, viaWeChat,
how they track their daily runs usingmapping apps on their
phones.
With that said, an attractive company is AntaSports, an
emerging, innovative sportswearfranchise. Fans of the Golden State
Warriors mightrecall that guard Klay Thompson endorsed itsproducts
earlier this year.
We believe the China region remains one of themost compelling
growth stories in the world andcontinues to provide exciting
investmentopportunities.
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Index SummaryThe major market indices finished up this week. The
Dow Jones Industrial Average rose 1.11 percent.The S&P 500
Stock Index rose 0.91 percent, while the Nasdaq Composite rose 2.60
percent. The Russell2000 small capitalization index was up 0.53
percent this week.
The Hang Seng Composite fell 2.90 percent this week; while
Taiwan rose 2.98 percent and the KOSPIrose 3.28 percent.
The 10-year Treasury bond yield rose 14 basis points to 7.12
percent.
All American Equity Fund - GBTFX • Holmes Macro Trends Fund -
MEGAX
Domestic Equity Market
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click to enlarge
StrengthsEnergy was the best performing sector in the S&P
500 Index during a very volatile week. The sharpdecline and
subsequent recovery of crude oil prices, prompted by investors’
concerns over China, causedthe S&P 500 Energy Index to fall
5.18 percent on Monday. The index finished the week up 3.65
percent.
The second estimate for U.S. second-quarter GDP growth
positively surprised markets this week.Estimates show the U.S.
economy to have expanded by a 3.7 percent annualized rate in the
secondquarter, the first estimate was for 2.3 percent.
U.S. durable goods orders during the month of July grew by 2
percent, blowing away estimates for a 0.4percent contraction. This
is a positive sign for the momentum behind the U.S. economy.
WeaknessesUtilities were the worst performing sector in the
S&P 500 Index this week, as the yield on the U.S.government
10-year note rose 14.6 basis points. The S&P 500 Utilities
Index fell 4.35 percent.
This week’s market turmoil highlighted just how fragile
investors’ confidence is at the moment. Equitiesin the U.S. may
still be seen as inflated and could experience further pull
backs.
Inflation expectations remain depressed. The 5-year, 5-year
forward breakeven rate of inflation ishovering just around 2
percent. This indicator helps to highlight investors’ concerns over
a globalslowdown.
OpportunitiesDespite many citing the sharp rise in the Chicago
Board Options Exchange SPX Volatility Index (VIX)this week, a
longer-term view shows that the rise was not terribly severe.
Volatility was much higherduring the financial crisis as well as
the debt ceiling debacle in 2011. Although not a positive sign,
thiscould mean the correction was nothing more than a buying
opportunity for investors rather than deepfundamental trouble in
the global economy.
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click to enlarge
Consumer confidence rose sharply for the month of August, which
continues to be a tailwind fordiscretionary stocks. The Conference
Board Consumer Confidence Index rebounded to 101.5 in Augustfrom
90.9 in July.
Amid the market turmoil this week, the Federal Reserve may
reconsider raising interest rates this year.If normalization is
postponed, cyclicals should benefit. Some analysts are even
expecting the Fed to easeagain.
ThreatsIt would be unwise to ignore the concerns permeating
throughout global markets at the moment. Notonly is the China
slowdown scare rattling markets, more volatility could occur over
the short term.
The ISM manufacturing purchasing managers’ index (PMI) will be
released next week and expected tofall slightly. However, the index
should remain above the key 50 level.
Despite this week’s recovery, the energy and materials sectors
remain considerably volatile anddepressed, as the underlying
commodity prices continue on a downtrend.
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U.S. Government Securities Ultra-Short Bond Fund - UGSDX •
Near-Term Tax Free Fund - NEARX
The Economy and Bond MarketMarket volatility spiked dramatically
early this week as fears about the depth of China's economic
downturnescalated. Asian markets were hit the hardest while
European shares were also unstable, and Japan's Nikkei225 and U.S.
stock indices had six-day stretches of losses before rallying as
strong U.S. economic datacountered worries about China's
weakness.
The VIX index, which measures U.S. stock market volatility, hit
53 intraday on Monday, then dropped backbelow 27 on Friday. The
yield on the 10-year U.S. Treasury note touched 1.9 percent Monday,
the lowest sinceApril, then rebounded to settle at 2.18 percent
Friday. U.S. West Texas Intermediate and Brent crude oil
pricesrecovered from Monday lows near $38 and $42 per barrel,
respectively, ending the week close to $45 and $49per barrel.
StrengthsSecond-quarter real GDP growth was revised up to 3.7
percent quarter-over-quarter seasonally adjustedannual rate (QoQ
saar) from 2.3 percent QoQ saar in the initial release. This was
above the expectedrevision to 3.2 percent QoQ saar and shows above
trend growth in the U.S.
Durable goods orders reportedly gained 2.0 percent
month-over-month (MoM) in July, significantlyabove the expected 0.4
percent MoM decline. June was revised to 4.1 percent MoM from 3.4
percentMoM initially.
U.S. new home sales rose 5.4 percent in July to a seasonally
adjusted annual rate of 507,000 units.Sales were 25.8 percent above
on a year-over-year (YoY) basis. The S&P/Case Shiller composite
index of20 metropolitan areas increased 5.0 percent in June from a
year earlier. The Pending Home Sales Indexincreased 0.5 percent to
110.9, suggesting further housing market improvements.
WeaknessesCore personal consumption expenditures (PCE) inched up
0.1 percent MoM in July, unchanged fromgrowth in the previous month
and in-line with expectations. This translates to 1.2 percent YoY
in July,down from 1.3 percent YoY in June and below market
consensus at 1.3 percent YoY.
Personal spending was reported at 0.3 percent MoM in July,
unchanged from the upwardly revised 0.3percent MoM in June (up from
0.2 percent MoM initially) and below expectations of 0.4 percent
MoM.
The University of Michigan Sentiment Index declined to 91.9 in
the final report for August from 92.9 inthe preliminary report and
is still below 93.1 in July. This was below the expected 93.0. The
currenteconomic conditions index declined to 105.1 in the final
report from 107.1 initially, down from 107.2 inJuly. The consumer
expectations index was roughly unchanged, at 83.4 in the final
report, down from83.8 in the preliminary report, and down from 84.1
in July.
OpportunitiesWith renewed global deflationary concerns, it will
be key to see whether the European Central Bank(ECB) ramps up its
quantitative easing program at next Thursday’s meeting.
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Market implied odds of a September rate hike have significantly
diminished, but should markets calm,the debate about the timing of
the Fed lift-off will again focus more on macro data. The last
labor marketreport before the September Federal Open Market
Committee (FOMC) meeting will be released onFriday. A continuation
of the strength seen in recent reports would favor a September rate
hike.
U.S. Manufacturers New Orders will be released Wednesday. Given
the one-month trend is above thethree-month trend, odds favor a
positive report that would support optimism about the continuing
paceof growth.
ThreatsWith China’s manufacturing PMI trending lower, the latest
release on Monday could revive marketturmoil. The U.S. ISM
Manufacturing Index is released on Tuesday. Since the one-month
trend is belowthe three-month trend, a further decline would
unsettle the markets.
Given the increase in the trade deficit to $43.8 billion in June
from $40.9 billion in May, a furtherincrease in the July report
coming out on Thursday would heighten concerns about the
detrimentaleffect of the strong dollar on the U.S. economy.
Given the sharp decline in equities, it is tempting to buy into
the recent rebound. However, thefundamentals remain deficient. Some
value may have been restored to valuations, but one of the
mainfactors driving the recent selloff was the contraction in
global earnings growth. Only improved growthand profits will
produce a sustainable comeback.
click to enlarge
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World Precious Minerals Fund - UNWPX • Gold and Precious Metals
Fund - USERX
Gold MarketFor the week, spot gold closed at $1,133.55 down
$27.40 per ounce, or 2.36 percent. Gold stocks, as measuredby the
NYSE Arca Gold Miners Index, lost 7.66 percent. The U.S.
Trade-Weighted Dollar Index gained 1.16percent for the week. The
S&P/TSX Venture Index rebounded 3.38 percent, where we saw
junior preciousmetals miners outperform their senior peers.
Date Event Survey Actual Prior
Aug -25 HK Exports YoY -4.50% -1.60% -3.10%
Aug -25 US New Home Sales 510K 507K 482K
Aug -25 US ConsumerConfidence Index 93.4 101.5 90.9
Aug -26 US Durable GoodsOrders -0.40% 2.00% 3.40%
Aug -27 US GDP AnnualizedQoQ 3.20% 3.70% 2.30%
Aug -27 U.S. Initial JoblessClaims 274K 271K 277K
Aug -28 GE CPI YoY 0.10% 0.20% 0.20%
Aug -31 EC CPI Core YoY 0.90% -- 1.00%
Aug -31 CH Caixin China PMIMfg 47.2 -- 47.1
Sep -1 US ISM Manufacturing 52.5 -- 52.7
Sep -2 US ADP EmploymentChange 200K -- 185K
Sep -3 EC ECB MainRefinancing Rate 0.05% -- 0.05%
Sep -3 US Initial Jobless Claims 275K -- 271K
Sep -4 US Change in NonfarmPayrolls 220K -- 215K
StrengthsPlatinum prices were off 0.14 percent this week,
holding in as the best performer of the precious metalsgroup. Gold
bullion, though down for the week also saw a pickup in the net long
position by the non-commercial, according to data released by the
Commodity Futures Trading Commission (CFTC).
Funds backed by gold saw the biggest inflows of assets in seven
months on speculation that the U.S.Federal Reserve may hold off on
raising interest rates. New York Fed Governor William Dudley said
onWednesday that the case for raising rates in September is
increasingly doubtful after recent turmoil in
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global stock markets, particularly stemming from fears about
weakened Chinese growth. Separately,Minneapolis Fed President
Narayana Kocherlakota said he sees ways to lower interest rates
further,citing asset-purchase tools.
According to France’s Economy Minister, the country plans to
open new mines, including gold mines. Rarely does France make the
news concerning gold mining; perhaps this is a sign of a greater
interest inhard assets versus currency reserves.
WeaknessesSilver did not fare as well as gold, finishing the
week down 4.79 percent. The net long position in silveronly ticked
up modestly while total known holdings in silver ETFs actually fell
0.14 percent. Palladiumwas much weaker than platinum, down 2.50
percent and the net long position actually contracted thispast
week. Perhaps the markets have seen a near-term peak in car
sales.
Gold had the biggest weekly drop in a month after data showed
that the U.S. economy grew more thanprevious estimates in the
second quarter. Subsequent to the GDP release, traders priced in a
30 percentchance that the Fed will raise rates next month, up from
24 percent a few days prior.
De Beers is set to cut diamond prices by as much as 9 percent
after production cuts failed to supportdemand for precious stones.
DeBeers, along with other diamond producers, are under pressure to
cutsupply and lower prices as traders, cutters and polishers
struggle to turn a profit amid a squeeze oncredit and languishing
jewelry sales.
click to enlarge
OpportunitiesAccording to Metals Focus, gold output will start
declining as soon as next year and production willplunge 18 percent
by the end of the decade. Global mine output surged 24 percent in a
decade to arecord 3,114 metric tons in 2014, as companies dug more
to exploit a 12-year bull market in prices.
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Expect more news next week that could impact gold as the annual
retreat at Jackson Hole gets into fullswing. News stories going
into the meeting have had a more accommodative slant to them with
therecent enhanced market volatility that investors have had to
contend with.
In a recent letter to clients, Ray Dalio, the head of
Bridgewater, the world’s largest hedge fund, said thatthe likely
path for the Federal Reserve is to embark on another round of
quantitative easing instead ofthe expected interest rate hikes.
ThreatsMohamed El-Erian has come out with a defense as to why
QE4 is not in the cards. First, he said the Fedis now set to
normalize monetary policy, not venture deeper into unchartered
territory. Second,unconventional policies haven’t proved as
effective as expected in stimulating high and sustainablegrowth.
Third, the origin of the financial market dislocation is outside
the U.S. this time. Last, havingexited the third round of easing in
a relatively orderly fashion in October, the Fed would be hesitant
toplace itself in the same position again, not only for economic
reasons but also because of the politicalrisks involved.
RBC cut its gold forecast for the second half of 2015 to $1,125
per ounce from $1,288 per ounce, citingweakness from the expected
Fed rate hike and the Chinese yuan.
Macquarie says the gains in gold are unlikely to be sustained
and investors should remain cautious untilthe Fed acts. The company
cut its 2016 gold forecast to $1,163 per ounce from $1,363 per
ounce.
August 26, 2015Frank Holmes: Gold is NotAlways Linear
August 24, 2015Gold is Not a BadPlace to Be
August 20, 2015Will the Fed Spark aCurrency War?
Global Resources Fund - PSPFX
Energy and Natural Resources Market
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StrengthsOil and gas royalty companies led natural resources
sub-industries this week, as crude oil made animpressive comeback
after falling below $37 a barrel earlier in the week on global
growth concerns. TheYorkville Royalty Oil & Gas Index gained 15
percent on the week.
Oil service and equipment stocks also rebounded on the back of
strong crude oil prices, afterovershooting to the downside the week
prior. The S&P 500 Oil & Gas Equipment & Services
SelectIndustry Index gained 5.4 percent over the prior five
days.
Canadian energy stocks finished the week off strong due in part
to favorable news from the Albertagovernment concerning the
initiation of a panel to review royalty rates for oil and gas
production. TheS&P/TSX Capped Energy Index increased 9.4
percent.
WeaknessesGold stocks gave back some gains from last week’s
rally following a rebound in the broader equitymarket later in the
week. The Philadelphia Gold & Silver Index declined 6.4 percent
this week.
Utilities underperformed this week as global equity markets
responded positively to dovish commentaryfrom the Federal Reserve.
Fed officials indicated that the bank may not be ready to raise
interest ratesnext month. The S&P 500 Utility Index fell 4.35
percent during the week.
Iron and steel equities continue to underperform as investors
remain fearful of a slowdown in China’sgrowth. The Bloomberg World
Iron & Steel Index fell 3.8 percent this week.
OpportunitiesChina’s manufacturing purchasing managers’ index
(PMI) for the month of August is scheduled to bereleased next week.
Signs of stabilization following the government’s initiation of
stimulus policiescould be bullish for commodities.
The release of the U.S. ISM manufacturing figure for August
could also positively impact commodities,particularly following
this week’s stronger second-quarter GDP revision.
On Monday oil fell nearly two-thirds from last year’s June high
to a six-year low of $37.75 a barrel.However, three of the last
five quarters have exceeded $160 billion in merger and acquisition
activity inthe space, the highest since the bottom for oil in the
late 1990s.
Threats
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Crude oil fell below $40 a barrel this week and could fall even
further given high inventories andresilient U.S. production.
Production remains elevated despite a lower rig count and softer
prices.
Concern over China’s slowing growth rate remains high.
Commodities and related stocks could continueto be volatile over
the short-term.
The Federal Reserve has all but said for certain that it will
raise rates this year. This threatens to boostthe U.S. dollar
higher, thus pressuring commodity prices.
China Region Fund - USCOX
China RegionStrengths
South Korean equities rallied this week, bouncing sharply after
Monday’s selloff. The Korea StockExchange KOSPI Index rose 3.28
percent.
Indonesian stocks outperformed this week, rallying after two
sharp declines during the prior weeks. TheJakarta Stock Exchange
Composite Index rose 2.54 percent this week.
Taiwan stocks rallied this week, despite a larger-than-expected
contraction in year-over-year industrialproduction. The Taiwan
Stock Exchange Weighted Index rose 2.98 percent.
WeaknessesChinese markets, both mainland and Hong Kong, got
hammered this week as the lack of governmentintervention over the
weekend prompted a sharp selloff on Monday. Despite further easing
later in theweek, the Shanghai Stock Exchange Composite Index and
the Hang Seng Composite Index fell 7.85 and2.90 percent,
respectively.
Equities in Singapore fell this week as year-over-year
industrial production for the month of July fellmore than expected.
The Straits Times Index fell 0.51 percent this week.
Philippine stocks fell this week as second-quarter GDP growth
fell slightly short of expectations and thetrade balance contracted
sharply for the month of June. The Philippines Stock Exchange PSEi
Index fell2.48 percent this week.
OpportunitiesWhile the Chinese central bank delivered twin cuts
this week, in interest rate and reserve ratio forbanks, volatility
in the Chinese A-Share market is still hovering around decade
highs. Indeed, althoughthe Shanghai Composite Index failed to
surpass its October 2007 peak in the recent leverage-drivenrally,
its volatility has certainly surged to new highs as today’s younger
retail investors are moresusceptible to rapid-fire decision making
on their smartphones at the same speed as sensationalheadlines go
viral.
Given the near-term unsettled market sentiment and subdued
industrial activity due to factoryshutdowns in preparation for next
week’s military parade in Beijing, holding higher-than-normal
cashshould be the most prudent approach.
http://www.usfunds.com/slideshows/explore-the-8-busiest-airports-in-the-world/http://www.usfunds.com/our-funds/our-mutual-funds/china-region-fund/
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click to enlarge
Following the Bank of Thailand’s decision to permit certain
investors to invest in foreign assets, the Thaibaht fell to a
six-year low. The country’s weaker currency should benefit Thai
exporters.
Given the recent market turmoil, a stronger case can now be made
for the Federal Reserve to delay ratehikes until December or until
next year. Doing so would be beneficial for emerging markets.
ThreatsMalaysia’s foreign exchange reserve fell below $100
billion (USD) in July for the first time since August2010. With a
slumping local currency, accelerating capital outflow, growing
fiscal pressure and aboveall, a real threat of crude oil declining
further, the net energy-exporting country is vulnerable
forsustained underperformance within emerging Asia.
China’s manufacturing purchasing managers’ index (PMI) will be
released next week and is expected tofall from 50 to 49.7 percent.
With a reading below 50 signaling a contraction, markets could take
a diveif the forecasts prove to be accurate.
South Korean data for year-over-year growth in exports in
August, as well as industrial production forthe month of July, will
be released next week. Both sets of data are expected to
decline.
Emerging Europe Fund - EUROX
Emerging EuropeStrengths
Russia was the best performer among the Emerging Europe
countries this week, gaining 9 percent. Thesuperior performance of
Russian stocks was supported by a strong rebound in Brent oil along
with astrengthening ruble.
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click to enlarge
The Russian ruble was the strongest currency among the Emerging
Europe countries this week, gaining6.3 percent. The currency
rallied after crude prices rose from Monday’s six-year low and
concerns easedover a slowdown in China.
Energy was the best performing sector this week supported by
crude oil appreciating 17.45 percent.
WeaknessesHungary was the weakest performing country this week.
Second-quarter GDP came in at 2.7 percentversus the prior 3.5
percent. Hungary’s central bank lefts its main interest rate
unchanged at 1.35percent. This low rate should help to stimulate
the economy’s growth.
The Hungarian forint was the weakest currency this week, losing
1.8 percent.
In a risk-on week, the healthcare sector was the worst
performing sector.
OpportunitiesA September rate hike by the Federal Reserve may
not materialize anymore following the selloff inglobal stock
markets. Emerging Europe will benefit if the Fed keeps interest
rates at the current lowerlevel as investors pile into more risky
assets.
The Czech Republic, Hungary and Poland may be the best places to
“hide,” assuming tough marketconditions continue. Since April 28,
when the MSCI Emerging Markets Index peaked, the CzechRepublic has
been the best performing market followed by Hungary and Poland.
Central Europe is notdependent on commodities or China, and since
it’s a net importer of crude oil, this area benefits fromcheap oil
prices.
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click to enlarge
Russia’s central bank pledged to help cover foreign debt this
week. Central Bank Governor ElviraNabiullina will renew the
12-month loan program in order to help borrowers with $61 billion
of externaldebt payments over the next four months.
ThreatsAccording to the Russian Ministry of Economic
Development, if oil trades at $40 per barrel and thedollar is
trading more than RUB75, Russia will find itself in recession until
2017 and Russian residentswill experience a collapse in real
income.
Polish bonds outperformed all major emerging markets in the
aftermath of China’s yuan devaluation;however, political risk still
exists in Poland. Parliamentary elections will take place later
this year. Theopposition Law & Justice party, the party
currently leading opinion polls, plans to tax bank assets
andincrease social spending, putting pressure on economic
growth.
It seems there is still no political visibility in Turkey. A
snap election is set to take place November 1,and the Turkish lira
remains vulnerable to the possible worsening of global
sentiment.
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August 24, 2015Gold Glimmersas GlobalMarket FearGrips
Investors
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Betson Gold and Airlines
Leaders and LaggardsWeekly Performance
Index CloseWeekly
Change($)Weekly
Change(%)
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DJIA 16,643.01 +183.26 +1.11%
S&P 500 1,988.87 +17.98 +0.91%
S&P Energy 479.16 +16.87 +3.65%
S&P Basic Materials 273.04 +2.36 +0.87%
Nasdaq 4,828.33 +122.29 +2.60%
Russell 2000 1,162.91 +6.13 +0.53%
Hang Seng Composite Index 2,957.09 -88.24 -2.90%
Korean KOSPI Index 1,937.67 +61.60 +3.28%
S&P/TSX Canadian Gold Index 130.15 -9.63 -6.89%
XAU 48.82 -3.35 -6.42%
Gold Futures 1,133.10 -26.50 -2.29%
Oil Futures 45.31 +4.86 +12.01%
Natural Gas Futures 2.72 +0.05 +1.72%
10-Yr Treasury Bond 2.18 +0.15 +7.12%
Monthly Performance
Index CloseMonthly
Change($)Monthly
Change(%)
DJIA 16,643.01 -1,108.38 -6.24%
S&P 500 1,988.87 -119.70 -5.68%
S&P Energy 479.16 -45.84 -8.73%
S&P Basic Materials 273.04 -14.64 -5.09%
Nasdaq 4,828.33 -283.41 -5.54%
Russell 2000 1,162.91 -66.69 -5.42%
Hang Seng Composite Index 2,957.09 -389.59 -11.64%
Korean KOSPI Index 1,937.67 -99.95 -4.91%
S&P/TSX Canadian Gold Index 130.15 +7.52 +6.13%
XAU 48.82 +0.45 +0.93%
Gold Futures 1,133.10 +39.80 +3.64%
Oil Futures 45.31 -3.48 -7.13%
Natural Gas Futures 2.72 -0.16 -5.68%
10-Yr Treasury Bond 2.18 -0.11 -4.59%
Quarterly Performance
Index CloseQuarterly
Change($)Quarterly
Change(%)
DJIA 16,643.01 -1,367.67 -7.59%
S&P 500 1,988.87 -118.52 -5.62%
S&P Energy 479.16 -92.25 -16.14%
S&P Basic Materials 273.04 -43.68 -13.79%
Nasdaq 4,828.33 -241.70 -4.77%
Russell 2000 1,162.91 -83.62 -6.71%
Hang Seng Composite Index 2,957.09 -914.05 -23.61%
Korean KOSPI Index 1,937.67 -177.13 -8.38%
S&P/TSX Canadian Gold Index 130.15 -35.27 -21.32%
XAU 48.82 -20.88 -29.96%
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Gold Futures 1,133.10 -58.60 -4.92%
Oil Futures 45.31 -14.99 -24.86%
Natural Gas Futures 2.72 +0.08 +3.03%
10-Yr Treasury Bond 2.18 +0.06 +2.83%
Please consider carefully a fund’s investment objectives, risks,
charges and expenses. For this and otherimportant information,
obtain a fund prospectus by visiting www.usfunds.com or by calling
1-800-US-FUNDS (1-800-873-8637). Read it carefully before
investing. Distributed by U.S. Global Brokerage, Inc.
All opinions expressed and data provided are subject to change
without notice. Some of these opinions may not beappropriate to
every investor.
Stock markets can be volatile and share prices can fluctuate in
response to sector-related and other risks as described inthe fund
prospectus.
Foreign and emerging market investing involves special risks
such as currency fluctuation and less public disclosure, aswell as
economic and political risk. By investing in a specific geographic
region, a regional fund’s returns and share pricemay 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 moresusceptible to risk in
these industries than funds which do not concentrate their
investments in an industry and may makethe fund’s performance more
volatile.
Because the Global Resources Fund concentrates its investments
in a specific industry, the fund may be subject togreater 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
regulatorydevelopments due to concentrating in a single theme. The
prices of gold, precious metals, and precious minerals aresubject
to substantial price fluctuations over short periods of time and
may be affected by unpredicted internationalmonetary and political
policies. We suggest investing no more than 5 percent to 10 percent
of your portfolio in thesesectors.
Bond funds are subject to interest-rate risk; their value
declines as interest rates rise. Though the Near-Term Tax FreeFund
seeks minimal fluctuations in share price, it is subject to the
risk that the credit quality of a portfolio holding coulddecline,
as well as risk related to changes in the economic conditions of a
state, region or issuer. These risks could causethe fund’s share
price to decline. Tax-exempt income is federal income tax free. A
portion of this income may be subjectto state and local taxes and
at times the alternative minimum tax. The Near-Term Tax Free Fund
may invest up to 20% ofits assets in securities that pay taxable
interest. Income or fund distributions attributable to capital
gains are usuallysubject to both state and federal income
taxes.
Investing in real estate securities involves risks including the
potential loss of principal resulting from changes in
propertyvalue, 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 informationsupplied 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 recentquarter-end.
Holdings as a percentage of net assets as of 6/30/2015:
Tencent Holdings Ltd: China Region Fund, 6.52%AIA Group Ltd:
China Region Fund, 1.92%Ping An Insurance Group Co.: China Region
Fund, 3.28%CT Environmental Group Ltd: China Region Fund, 0.52%ANTA
Sports Products Ltd: China Region Fund, 0.57%
*The above-mentioned indices are not total returns. These
returns reflect simple appreciation only and do not reflectdividend
reinvestment.
The Dow Jones Industrial Average is a price-weighted average of
30 blue chip stocks that are generally leaders in theirindustry.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
theRussell 3000®, a widely recognized small-cap index.The Hang Seng
Composite Index is a market capitalization-weighted index that
comprises the top 200 companies listedon 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 TaiwanStock
Exchange.The Korea Stock Price Index is a capitalization-weighted
index of all common shares and preferred shares on the KoreanStock
Exchanges. The Philadelphia Stock Exchange Gold and Silver Index
(XAU) is a capitalization-weighted index that includes the
leadingcompanies 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 arecapped 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 subsetof the S&P 500.The S&P 500
Materials Index is a capitalization-weighted index that tracks the
companies in the material sector as asubset 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 the1941-43 base
period.The S&P 500 Industrials Index is a Materials Index is a
capitalization-weighted index that tracks the companies in
theindustrial 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 consumerdiscretionary 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 theinformation 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 inthe
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 subsetof the S&P
500.The S&P 500 Healthcare Index is a capitalization-weighted
index that tracks the companies in the healthcare sector as asubset
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 thetelecom 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 tradedcompanies 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 marketbasket of goods and services purchased by
individuals. The weights of components are based on consumer
spendingpatterns.The Purchasing Manager’s Index is an indicator of
the economic health of the manufacturing sector. The PMI index
isbased on five major indicators: new orders, inventory levels,
production, supplier deliveries and the employmentenvironment.The
Shanghai Composite Index (SSE) is an index of all stocks that trade
on the Shanghai Stock Exchange.M2 Money Supply is a broad measure
of money supply that includes M1 in addition to all time-related
deposits, savingsdeposits, and non-institutional money-market
funds.The London Metals Exchange Index (LMEX) is an index on the
six designated LME primary metals contracts denominatedin US
dollars. Weightings of the six metals are derived from global
production volume and trade liquidity averaged overthe preceding
five-year period. The index value is calculated as the sum of the
prices for the three qualifying monthsmultiplies by the
corresponding weights, multiplied by a constant.The Chicago Board
Options Exchange (CBOE) Volatility Index (VIX) shows the market's
expectation of 30-day volatility.The Consumer Confidence Index
(CCI) is an indicator which measures consumer confidence in the
economy.The NIKKEI 225 Index is a price-weighted index of 225
top-rated Japanese companies listed in the First Section of
theTokyo Stock Exchange.The S&P/Case-Shiller Index tracks
changes in home prices throughout the United States by following
price movements inthe value of homes in 20 major metropolitan
areas.The National Association of Realtors Index of pending home
sales tracks signed real estate contracts for existing
single-family homes, condos and co-ops that have not yet closed. As
such, it is a leading indicator for existing home sales.The
University of Michigan Consumer Sentiment Index is comprised of
measures of attitudes toward personal finances,general business
conditions, and market conditions or prices.The Yorkville Royalty
Trust Oil & Gas Index is a market capitalization weighted index
consisting of the entire universe ofroyalty trusts involved in a
balance of oil and natural gas production.The S&P 1500
Supercomposite Oil & Gas Equipment & Services Index is a
capitalization-weighted index comprised ofstocks whose primary
function is equipment and services for natural gas and oil
resources.The S&P/TSX Capped Energy Index is a constrained
market capitalization-weighted index that consists of
Canadianenergy sector companies listed on the Toronto Stock
Exchange. The Bloomberg World Iron & Steel Index is a
capitalization-weighted index of the leading iron/steel stocks in
the world.The MSCI Emerging Markets Index is a free float-adjusted
market capitalization index that is designed to measure
equitymarket performance in the global emerging markets.The Jakarta
Stock Price Index is a modified capitalization-weighted index of
all stocks listed on the regular board of theIndonesia Stock
Exchange.The TWSE, or TAIEX, Index is a capitalization-weighted
index of all listed common shares traded on the Taiwan
StockExchange.The Straits Times Index is a modified market
capitalization-weighted index comprised of the most heavily
weighted andactive stocks traded on the Stock Exchange of
Singapore.
-
The Philippine Stock Exchange PSEi Index is composed of stocks
representative of the industrial, properties, services,holding
firms, financial and mining & oil sectors of the Philippines
Stock Exchange.
Local DiskWeekly Investor Alert by U.S. Global Investors,
Inc.