whats driving emerging markets

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Julian Mayo Investment Director Charlemagne Capital (UK) Ltd September 2006

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 Long-term 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 Delivering the results and service you demand What’s Driving Emerging Markets?

Eastern European Fund: 

Chart Source: Stockhouse Eastern European Fund

Global Emerging Markets Fund: 

Chart Source: Stockhouse Global Emerging Markets Fund

The Big Picture: 

The Big Picture

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Emerging markets dominate The big picture Emerging Markets: China, Brazil, Mexico, India, Korea, Taiwan, Russia Developed: US, Japan, Germany, UK, France, Italy, Canada Source: World Bank Dec 2003

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Emerging Markets: China, Brazil, Mexico, India, Korea, Taiwan, Russia G7: 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?: 

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

What’s Driving Emerging Markets?: 

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

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Net oil exports as a percentage of GDP Source: UBS August 2005 Developed markets oil dependent: GEMs mixed

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Source: UBS – Sept 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 – Sept 2006 Currencies not expensive *REER = Real effective exchange rates *

What’s Driving Emerging Markets?: 

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

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Balance sheet strength Source: UBS – Sept 2006 Lower risk

What’s Driving Emerging Markets?: 

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

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 – Sept 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 – Sept 2006 Earnings are surging

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? PE ratios – still undervalued Source: UBS – Sept 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 – Sept 2006 Emerging still cheap relative to developed markets

What’s Driving Emerging Markets?: 

What’s Driving Emerging Markets? Source: UBS September 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. Performance data quoted above is historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any fees described in the fund’s prospectus (e.g. short-term trading fees) which, if applicable, would lower your total returns. Obtain performance data current to the most recent month-end at www.usfunds.com or 1-800-US-FUNDS, option 5. Please keep in mind that high double-digit and triple-digit returns are highly unusual and cannot be sustained. Recent returns were achieved during favorable market conditions, especially within the emerging markets sector. Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. 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.