India Outlook-Emerging Market
India Outlook-Emerging Market
India Outlook-Emerging Market
Frank E. Holmes
Chief Investment Officer
U.S. Global Investors, Inc.
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Emerging Markets vs. the U.S.
Purchasing power parity (PPP) is the method of using the long-run equilibrium exchange rate of two currencies to equalize the
currencies' purchasing power. It is based on the law of one price, the idea that, in an efficient market, identical goods must have
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EM Rebounds from Three Currency Crises
Sake Crisis
6.0
5.0
4.0
3.0
Vodka Crisis
2.0
1.0
Tequila Crisis
0.0
-1.0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
As of Oct 2006. Source: IMF, Merrill Lynch calculations
2200
1700
1200
700
Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06
Emerging Developed
600
400
200
-200
-400
-600
-800
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Emerging Developed
Source: IMF, Merrill Lynch calculations
BB+
BB
BB-
02 03 04 05 06 07
47 44 43
38
33
30
25 24
16 16 16
12 10 9 9
3 1
-2
S. Africa
Korea
France
Mexico
Brazil
US
UK
India
Turkey
Russia
Japan
China
Taiwan
Poland
Thailand
Malaysia
Germany
Indonesia
Chile
Source: Merrill Lynch iQ database as of 10/18/06
n Following the many crises of the 1990s, EM corporate sectors are under-levered
n Low leverage gives room to improve ROE and flexibility for M&A
0
10
20
30
40
50
60
Switzerland
Denmark
United States
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Sweden
Netherlands
DEVELOPED
Morocco
Indonesia
Egypt
Huge Catch-Up Growth Potential
Philippines
Emerging markets
Developed markets
Pakistan
India
10Source: Merrill Lynch
Historical Growth Patterns - Oil
Oil Consumption and Industrialization, 1900 to present
Oil per capita rises rapidly during early industrialization, then levels to rapid real income growth. Rising world
Oil Consumption trade actually stimulates the industrialization phase.
per capita:
Lower U.S. labor costs versus Europe and U.S.
the U.K. drive American industrialization,
enrichment and energy consumption
1 to 28
S. Korea
Japan
1 to 18
1 to 7
Lower
Lower Korean
Japanese
labor costs do the
1 to 1.7 labor costs do
the same to same to Japan
China & Hong Kong
the U.S.
0.7
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Historical Growth Patterns - Electricity
Intensity of electricity consumption
Source: BHPB
Power consumption has been growing faster than the rate of GDP growth.
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Historical Growth Patterns - Steel
India USA
China
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Did You Know?
Chindia Today
Accounts for
38% of world population
49% of world iron ore consumption
55% of world cement consumption
59% of world vegetable production
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Chindia History and Potential
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Chindia History
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Infrastructure Life Cycle
20 years
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Chindia History and Potential
India China
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Chindia History and Potential
China
India
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Commodity Demand
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Chindia Future-Airports
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Chindia History and Potential
India China
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Chindia Future-Oil Markets
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Securing Oil Security: Building
a Presence Across The World
900 360
340
800
320
700
300
600 280
500 260
240
400
220
300
200
200 180
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
oscillator - A technical analysis term for an indicator that moves up and down, wavelike, within a price range.
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Managing Volatility
Gold Price vs. Dollar 60-day oscillator
Source: Bloomberg
oscillator - A technical analysis term for an indicator that moves up and down, wavelike, within a price range.
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1000 by 2010?
MSCI EM Index
1000
Bull Bear Bull
100
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Source: Bloomberg
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Under-Owned
For more complete information about any U.S. Global fund, including charges and
expenses, obtain a fund’s prospectus by visiting us at www.usfunds.com or call
1-800-US-FUNDS (1-800-873-8637). Please consider carefully the fund’s investment
objectives, risks, charges and expenses. Read it carefully before investing. Distributed
by U.S. Global Brokerage, Inc.
All opinions and estimates in this report constitutes U.S. Global Investors’ judgment as of the date of this report and are subject
to change without notice and provided in good faith, fairness and reasonableness but without legal responsibility.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market
performance in the global emerging markets. The CRB/Reuters Futures Price Index is an unweighted geometric average of commodity
price levels relative to the base year average price. The U.S. Trade Weighted Dollar Index provides a general indication of the international
value of the U.S. dollar. The Mumbai Stock Exchange Sensitive Index (Sensex) is a cap-weighted index. The selection of the index
members has been made on the basis of liquidity, depth, and floating-stock-adjustment depth and industry representation. The TOPIX, also
known as the Tokyo Stock Price Index, is a capitalization weighted index of all companies listed on the First Section of the Tokyo Stock
Exchange.
Holdings as a percentage of net assets as of 9/30/06: Caterpillar (0.00%); Boeing (0.00%); Gazprom (0.00%); Samsung Electronics: Global
Emerging Markets Fund (6.82%); China Mobile: China Region Opportunity Fund (4.97%); America Movil: Global Emerging Markets Fund
(3.82%); Taiwan Semiconductor: China Region Opportunity Fund (2.73%) Global Emerging Markets Fund (2.98%); Lukoil: Eastern
European Fund (10.69%); Petrobras: Global Resources Fund (2.3%) Global Emerging Markets Fund (3.18%); Kookmin Bank: Global
Emerging Markets Fund (1.58%); Hon Hai Precision: China Region Opportunity Fund (2.90%); Teva Pharmaceutical (0.00%); PetroChina:
China Region Opportunity Fund (3.02%) Global Resources Fund (0.74%); Infosys (0.00%); POSCO: Global Emerging Markets Fund
(0.98%); CVRD: Global Emerging Markets Fund (1.88%); Sasol Ltd.: Global Emerging Markets Fund (1.88%); Cemex (0.00%); Banco Itau
(0.00%); Reliance Industries (0.00%). 06-238
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