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U.S. Global Investors, Inc.
7900 Callaghan Rd.
San Antonio, TX 78229
210.308.1234
Chindia and its Global ImpactFrank E. Holmes
Chief Investment OfficerU.S. Global Investors, Inc.
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6 Billion People-Tipping Point
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Emerging Markets vs. the U.S.
Over 80% of the worlds population
lives in emerging markets
Source: U.S. Census Bureau; World Bank
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Why Emerging Markets Matter
Purchasing power par ity (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 haveonly one price.
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As of Oct 2006. Source: IMF, Merrill Lynch calculations
n Era of crises did not prevent EM economies outperforming G7
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
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
GEM G7
EM Rebounds from Three Currency Crises
EM and G7 GDP growth
Source: Merrill Lynch
Sake Crisis
Tequila Crisis
Vodka Crisis
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n EMEs hold 70% of global foreign-exchange reservesn Less prone to contagious crises than before
700
1200
1700
2200
2700
Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06
Emerging Developed
Foreign exchange reserves, US$bn
New Paradigm: Massive Reserves
Source: Merrill Lynch
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-800
-600
-400
-200
0
200
400
600
800
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Emerging Developed
New Paradigm: Massive Creditor
Source: IMF, Merrill Lynch calculations
n EM runs a $700bn current account surplus; DM runs a $700 deficitn EM is a creditor; DM is a debtor
Current account, US$bn
Source: Merrill Lynch
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New Paradigm: Low Risk
As of Oct 2006. Source: Merrill Lynch
n 40% of EM debt now rated investment graden A decade ago, just 3% of the EM debt universe was investment grade
02 03 04 05 06 07
BB-
BB
BB+
BBB- Debt ratings improving
Source: Merrill Lynch
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Under-Leveraged
Source: Merrill Lynch iQ database as of 10/18/06
Net Debt/Equity, 2006 MLe62
47 44 4338
3330
25 24
16 16 16
12 10 9 93 1
-2
Germany
Thailand
Turkey
France
US
UK
Korea
Mexico
Japan
Chile
Indonesia
S.
Africa
Brazil
Poland
India
Malaysia
Russia
China
Taiwan
n Following the many crises of the 1990s, EM corporate sectors are under-leveredn Low leverage gives room to improve ROE and flexibility for M&A
Net debt/equity, 2006 MLe
Source: Merrill Lynch
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Huge Catch-Up Growth Potential
As of Sep 2006. Source: IMF
0
10
20
30
40
50
60
Sw
itzerland
Denmark
UnitedStates
Sweden
Ne
therlands
DEV
ELOPED
Canada
United
Kingdom
Australia
France
Germany
Japan
Italy
S
ingapore
Spain
HongKong
Greece
Israel
Korea
Taiwan
CzechRep
Hungary
Poland
Chile
Mexico
Russia
V
enezuela
Argentina
Malaysia
So
uthAfrica
Turkey
Brazil
EM
ERGING
Peru
Thailand
Colombia
Jordan
China
Morocco
Indonesia
Egypt
P
hilippines
Pakistan
India
GD
Ppercap,US$k
Emerging markets
Developed markets
n Poor countries grow faster than rich onesn EM GDP per capita is US$5,000 vs. $40,000 in developed markets
Source: Merrill Lynch
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Historical Growth Patterns - Oil
Oil Consumption
per capita:
1 to 28
1 to 18
1 to 7
1 to 1.7
0.7
Source: Dr. Marc Faber
U.S.
S. KoreaJapan
China & Hong Kong
Oil Consumption and Industrialization, 1900 to present
Lower U.S. labor costs versus Europe and
the U.K. drive American industrialization,enrichment and energy consumption
Lower
Japaneselabor costs dothe same to
the U.S.
Lower Koreanlabor costs do the
same to Japan
Oil per capita rises rapidly during early industr ialization, then levels to rapid real income growth. Rising world
trade actually stimulates the industrialization phase.
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Historical Growth Patterns - Electricity
Power consumption has been growing faster than the rate of GDP growth.
Source: BHPB
Intensity of electricity consumption
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Historical Growth Patterns - Steel
Chinese steel consumption is still low compared to other developedeconomies. Korean and Taiwanese per capita steel consumption is 4 to 5times larger than Chinese. If China was to rise to Korean steel consumptionlevels, the demand would stay strong for 25 years at 5% growth.
Global Steel Consumption and GDP per Capita
Source: IISI, The Economist, CSFB estimates
China
Korea Taiwan
USAIndia
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Did You Know?
Chindia Today
Accounts for38% 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
Source: Global Insight, CLSA Asia-Pacific Markets
India China
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Chindia History and Potential
Source: CLSA Asia-Pacific Markets
India
China
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Chindia Future-Highways
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Commodity Demand
Source: BHP Billiton
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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
Source: CLSA Asia-Pacific Markets
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Chindias LNG Terminals
Source: CLSA Asia-Pacific Markets
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Correlated with Commodities
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500
600
700
800
900
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
180
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280
300
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360
MSCI EM CRB FuturesSource: Thomson Datastream
Source: Merrill Lynch
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Managing Volatility
oscillator - A technical analysis term for an indicator that moves up and down, wavelike, within a price range.
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Managing Volatility
Source: Bloomberg
Gold Price vs. Dollar 60-day oscillator
oscillator - A technical analysis term for an indicator that moves up and down, wavelike, within a price range.
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100
1000
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Bull Bear Bull
Source: Bloomberg
MSCI EM Index
1000 by 2010?
Source: Merrill Lynch
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The Secular Bull Case
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Under-Owned
n Massive room for pension fund allocation to EM to grow
n Since 1996, $1.3trn of inflows into US equity fundsn Since 1996, $40bn of inflows into EM equity funds (source: ICI)
Pension funds and equity owners
Pension fund asset allocation**, % allocation to:
US$ % GDP Equities Fixed income Other
Emerging markets 390 bn 12.0 10.7 79.6 12.3
Developed markets 15 trn 39.2 25.4 44.7 34.3
Source: *Hu 2005, ** OECD 2004
Total assets of domestic pension funds*
Pension funds and equity ownership
Source: Merrill Lynch
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Float Mkt Cap, $bnGazprom 97.6
Samsung Electronics 76.0China Mobile 39.9
America Movil 37.6
Taiwan Semiconductor 37.2
Lukoil 37.2
Petrobras PN 31.2
Kookmin Bank 27.7
Hon Hai Precision 25.5
Petrobras ON 24.9Teva Pharmaceutical 23.3
PetroChina 21.0
Infosys 20.9
POSCO 20.8
CVRD PN 20.4
Sasol Ltd. 19.8
Cemex 19.3
Banco Itau 17.3Reliance Industries 17.3
CVRD ON 16.9
as of 30-Oct-2006
Source: MSCI
Source: Merrill Lynch
20 Largest* Stocks in MSCI EM Index
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Disclosure
For more complete information about any U.S. Global fund, including charges andexpenses, obtain a funds prospectus by visiting us atwww.usfunds.comor call
1-800-US-FUNDS (1-800-873-8637). Please consider carefully the funds 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: GlobalEmerging 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