india outlook-emerging market

8/9/2019 India Outlook-Emerging Market

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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



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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



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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



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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



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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



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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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Source: Global Insight, CLSA Asia-Pacific Markets

India China


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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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India China


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Chindia Future-Oil Markets


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Securing Oil Security: Building

a Presence Across The World



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Chindias LNG Terminals



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Correlated with Commodities

200

300

400

500

600

700

800

900

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

180

200

220

240

260

280

300

320

340

360

MSCI EM CRB FuturesSource: Thomson Datastream



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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?



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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



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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


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

india outlook-emerging market

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