emerging markets 01232007

Emerging Markets: Building on Success: 

Emerging Markets: Building on Success Julian Mayo Investment Director Charlemagne Capital (UK) Ltd January 2007

What’s Driving Emerging Markets?: 

The Big Picture Much too big to ignore! Emerging economies Very strong fundamentals, and some misunderstandings Emerging markets as diversifiers Should every portfolio have some? Valuations & investment opportunities Still not in the price What’s Driving Emerging Markets? Agenda

Charlemagne Capital: 

Charlemagne Capital Consistent track record in emerging markets Advisers to EUROX and GEMFX Disciplined, risk-aware, bottom-up investment process Independent client focused asset manager with specialist investment management team What’s Driving Emerging Markets?

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? The Market Charlemagne Capital Universe Selected opportunity set Company visits Special situations Liquidity test Portfolio Focused Low volatility Based on client objectives IN OUT IN OUT Aiming for superior risk-adjusted returns Investment process

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Process - clear ownership structure Disciplined bottom-up research

The Big Picture: 

The Big Picture

What’s Driving Emerging Markets?: 

Source: World Bank Dec 2003 What’s Driving Emerging Markets? Emerging markets dominate The big picture

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Emerging Markets: China, Brazil, Mexico, India, Korea, Taiwan, Russia Developed: US, Japan, Germany, UK, France, Italy, Canada Source: World Bank figures Sept. 2004, data shown for Dec 2003 PPP paints a more realistic picture The big picture

What’s Driving Emerging Markets?: 

Source: Factset, MSCI, data shown for Dec 2004 using MSCI ACWI and MSCI EM indices What’s Driving Emerging Markets? Pay 5 to get 38! The big picture

Emerging Economies: 

Emerging Economies

So, What IS Driving Emerging Markets???: 

So, What IS Driving Emerging Markets??? Source: UBS – Sept 2006 Not US earnings growth! 1990 - 2006 No correlation

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Emerging markets: the new global powerhouses Source: Dresdner Kleinwort Debt Research – August 2006 Increasing presence on the global stage

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Dependency ratios Better demographics Source: UBS – December 2006

What’s Driving Emerging Markets?: 

Source: EIU, data shown is for December 2003 What’s Driving Emerging Markets? Labour is cheap Low-cost labour

What’s Driving Emerging Markets?: 

Source: Eurostat 2003 and JP Morgan – June 05 * Conceptually equivalent to inverse of conventionally defined unit labour cost. … but productive Low-cost labour What’s Driving Emerging Markets?

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Source: UBS – December 2006 Surpluses in emerging markets Strong surpluses – unlike LATAM ’93, Asia ‘97

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Surpluses – yet currencies are not overvalued Source: UBS – December 2006 Currencies not expensive

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Prudence rules Source: Haver Analystics, Morgan Stanley Research. 2006E are Morgan Stanley Estimates Fiscal deficits almost disappearing

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Reserves now massively exceed debt Source: UBS – December 2006 Reserves rise 5x in seven years

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Financial strength Source: IIF, Haver Analytics, Morgan Stanley Research – Dec 2006 Top EM countries become net creditors

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Balance sheet strength Source: UBS – December 2006 Lower risk Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA): An indicator of a company's financial performance which is calculated as follows: EBITDA = Revenue - Expenses (excluding tax, interest, depreciation and amortization) Earnings Before Interest & Tax (EBIT): An indicator of a company's profitability, calculated as follows: EBIT = Revenue - Expenses (excluding tax and interest)

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? India and Russia – underleveraged giants Source: UBS – December 2006 Opportunities for balance sheet expansion

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Consumer boom ahead! Source: IMF, Morgan Stanley Research, Dec 2006 Underleveraged households

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Rewards for economic strength Source: Morgan Stanley – Dec 2006 Improving credit ratings

Emerging Markets as Diversifiers: 

Emerging Markets as Diversifiers

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Emerging markets: higher risk-adjusted returns Source: Dresdner Kleinwort Debt Research – Calculations based on JP Morgan, Merrill Lynch, S&P, Morgan Stanley Index data Great risk-return profile

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Emerging market equities: correlation with various markets Source: Dresdner Kleinwort Debt Research – Calculations based on weekly returns over the last year, on JP Morgan, Merrill Lynch, S&P, Morgan Stanley Index data Portfolio diversification

Valuations & Investment Opportunities: 

Valuations & Investment Opportunities

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Source: UBS – December 2006 GEM vs developed market-cap weighted sovereign yields Economic merits noted by bond markets

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Markets driven by earnings Source: UBS – December 2006 Earnings are surging

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? PE ratios – still undervalued Source: UBS – December 2006 …and valuations remain low

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? GEM vs global 12 mth forward consensus PEs Source: UBS – December 2006 Emerging still cheap relative to developed markets

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Source: UBS December 2006 GEM valuation summary Growing earnings, attractive valuations

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Emerging markets are too big, and too attractive, to ignore! Economies are booming and fundamentals are good Valuations are supportive in relative and absolute terms Charlemagne Capital – experienced stock pickers

Disclosure: 

Disclosure For more complete information about the Eastern European Fund (EUROX) and Global Emerging Markets Fund (GEMFX) or any U.S. Global fund, including charges and expenses, obtain a fund 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. Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. Diversification does not protect an investor from market risks and does not assure a profit. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance. 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 Merrill Lynch U.S. Treasuries Index tracks the performance of U.S. dollar denominated treasury securities issued in the U.S. domestic bond market. The Merrill Lynch U.S. Corporate Index tracks the performance of U.S. dollar denominated investment grade corporate debt issued in the U.S. domestic bond market. 07-235

The Disclaimer: 

The Disclaimer This document is issued by Charlemagne Capital (UK) Limited which is authorised and regulated by the Financial Services Authority (“FSA”). Magna Umbrella Fund plc is an open ended investment company authorised by the Financial Regulator as a UCITS, recognised by the FSA under section 264 of the Financial Services and Markets Act 2000 for marketing to persons in the UK, registered for public distribution in Germany and Luxembourg, authorised for public distribution in Austria, registered by the Autoriteit Financiële Markten in The Netherlands , authorised for public offering and solicitation in and from Switzerland by the Swiss Federal Banking Commission (the Fund is not subject to supervisions by the Swiss Federal Banking Commission or other Swiss public authority) and has notified Finanstilsynet (the Danish Financial Supervisory Authority) of its intention to market its shares in Denmark.  This document must not be relied on for the purposes of making any investment decisions.  Before investing in any fund(s) recipients who are not professional investors should contact their independent financial adviser and should read all documents relating to the particular fund(s) such as any report and accounts and offering memorandum/prospectus, which specifies the particular risks associated with the fund(s), together with any specific restrictions applying and the basis of dealing.  The value of any investments and any income generated may go down as well as up and is not guaranteed.  Past performance will not necessarily be repeated.  Changes in rates of exchange may have an adverse effect on the value, price or income of an investment.  There are additional risks associated with investments (made directly or through investment vehicles which invest) in emerging or developing markets.  The information in this document does not constitute investment, tax, legal or other advice and is not a recommendation or an offer to sell nor a solicitation of an offer to buy shares in the fund(s), which may only be made on the basis of the fund’s prospectus/ offering memorandum which can be obtained from the address below. An investor in the United Kingdom who enters into an investment agreement to acquire an interest in the fund will not have the right to cancel the agreement under any cancellation rules made by the FSA.  Charlemagne Capital (UK) Limited reasonably believes that the information contained herein is accurate as at the date of publication but no warranty or guarantee (express or implied) is given as to accuracy or completeness.  The information and any opinions expressed herein may change at any time.  This document and shares in the fund shall not be distributed, offered or sold in any jurisdiction in which such distribution, offer or sale would be unlawful and until the requirements of such jurisdiction have been satisfied.  The purchase of shares in the fund constitutes a high risk investment and investors may lose a substantial portion or even all of the money they invest in the fund. Issued by Charlemagne Capital (UK) Limited - Authorised and Regulated by the FSA. Charlemagne Capital (UK) Limited 39 St. James‘s Street London SW1A 1JD United Kingdom Tel: + 44 (0)20 7518 2100 Fax: + 44 (0)20 7518 2198/9 www.charlemagnecapital.com marketing@charlemagnecapital.com