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Frank Holmes
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Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., a boutique investment advisory firm based in San Antonio that manages domestic and offshore funds specializing in the natural resources and emerging markets sectors. The company’s no-load mutual funds include the... More
My company:
U.S. Global Investors
My blog:
Frank Talk: Insights for Investors
My book:
Goldwatcher: Demystifying Gold Investing
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  • Keeping A Nuanced View Of Emerging Markets

    When it comes to emerging markets, director of research John Derrick has become the "go-to" guy for VoiceAmerica's "Emerging and Frontier Markets Investing with Gavin Graham." Over the past couple of weeks, here are a few of the most important topics that John discussed with host Gavin Graham:

    VoiceAmerica Logo

    Q. As the turmoil in Syria erupted, has there been much impact in emerging markets?

    A. I think the biggest impact has been on Russia with higher oil prices. Russia is the biggest beneficiary, at least in the Eastern European and emerging region, and that is due to these higher oil prices along with the knock-on effect it has had throughout the economic unrest in the Middle East.

    There is also another big opportunity for Russia as we talk about energy going forward. You're seeing LNG projects moving forward and you're seeing pipeline projects moving forward in China as well. Those are big, important steps for Russia to diversify its revenue base.

    Director of Research John Derrick was able to see the resiliency of Eastern Europe first hand when he traveled to Prague, Budapest and Krakow to meet with executives.

    Q. There is news that Western Europe has finally emerged from recession. Has this also happened to markets in Eastern European economies and other emerging and frontier markets?

    A. We now have positive growth out of the eurozone. Indicators out of Germany have been better, industrial production has been better and sentiment indicators have also definitely improved. I think a lot of these things take time, but a lot of people are starting to come around to the European-recovery story. And for the region, I think this economic uptick has trickled down to everyone.

    The improvement in Europe is broadly positive for emerging markets. If you look at historical relationships between European economic activity, you will see a tighter correlation with emerging market economic activity than you will with that of the U.S. If we can get Europe growing again, that will be a positive dynamic for emerging markets. That helps China for one, which in turn helps a slew of other countries.

    Q. Often when we look at emerging and frontier countries, they look like great investment destinations that we want to be in now. Is it possible though, that one of the downsides to an increased interest in emerging and frontier markets is the large number of growth estimates out there, especially with a pretty wide range in some cases?

    A. As far as economic forecasts go, there can definitely be wide ranges. We try to focus on what is a likely sustainable trend and whether you have government policies that are going to be supportive of that trend. A good example is China because I know there are a lot of questions about the validity and accuracy of some of its numbers. You need to dig a little deeper than GDP, and really try to verify activity levels.

    You need to look at whether government policies are supportive of whatever the estimates are. China is expected to grow 7 or 7.5 percent this year, but it is fairly restrictive on the monetary front and even on the fiscal front as well. There is always risk that it may not actually reach those targets. It's a nuance type of view that you have to take with a lot of these countries.

    Every week, Gavin brings together experienced money managers, journalists and analysts to discuss global events, pinpointing opportunities in the market and expanding investors' knowledge. If you haven't had the chance to tune in, the full-length version of all the programs can be found on VoiceAmerica's website.

    Don't miss these related discussions.

    All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link above, you will be directed to a third-party website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: EEM
    Sep 19 11:25 AM | Link | Comment!
  • Start Bargain Hunting In Asian Stocks … Again?

    If you compare the Asian stock market these days to prior years, it's looking like "déjà vu" all over again, says Credit Suisse.

    In one of its latest reports, Credit Suisse's Asia Pacific Equity Research team compared this year's daily price data of the MSCI All Country Asia ex-Japan Index to that from 2010 and 2012. What's the common thread among these three years? Momentum of global growth bottomed each summer.

    You can see below how today's market is following a similar trend, hitting a low in the summer months. Yet, in 2010 and 2012, Asian stocks climbed significantly in the second half of the year.

    (click to enlarge)

    Could we see a rally this year? Chances are good, but keep in mind that the key difference in 2013 is the Federal Reserve's talk of easing its monetary program, says Credit Suisse.

    Looking at the data from the second half of 2010 and the second half of 2012, the firm finds the most promising areas were Asian cyclical stocks, which includes companies in the technology, consumer discretionary, energy, materials and industrials sectors, as well as companies in China and Korea.

    Back in 2012, I highlighted research that showed how Chinese stocks were looking inexpensive compared to other emerging markets. I said that the negativity pendulum had swung too far and the market was due for a rally.

    The rally was significant: From the beginning of June through the market peak in February 2013, the MSCI China Index rose about 27 percent.

    Today, it looks like China is once more the place to dig for bargains. Among Asian equities, China and Korea are "still the two most undervalued markets in the region," says Credit Suisse.

    Here's how the China Region Fund is poised to participate in this potential rally.

    Please consider carefully a fund's investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

    Past performance does not guarantee future results.

    Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund's returns and share price may be more volatile than those of a less concentrated portfolio.

    The MSCI China Free Index is a capitalization weighted index that monitors the performance of stocks from the country of China. The MSCI Asia ex-Japan Index is a free float-adjusted, capitalization-weighted index measuring the performance of all stock markets of China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand, India and Pakistan.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: AAXJ
    Sep 13 9:10 AM | Link | Comment!
  • Look For These European Stocks To Exert A Lot Of Horsepower

    The Wall Street Journal recently published an article, "Emerging Europe is a Haven in Selloff," highlighting the region's recent success in "rising above the storm" that other developing markets have not been able to avoid.

    Dark clouds have been swirling around emerging markets, with the MSCI Emerging Markets Index falling about 12 percent on a year-to-date basis.

    We've been expecting a bounce in Europe's emerging markets for some time now. In the Investor Alert a few weeks ago, we talked about how the area has lagged over the past five years. Since July 2008, the MSCI Emerging Market Eastern Europe Index has persistently underperformed the overall emerging market index.

    (click to enlarge)

    This underperformance happened seemingly through no fault of their own. As we've discussed, Eastern Europe has been an area of strength, with a rising middle class, low unemployment and a relatively strong economy. Rather, companies in these countries have suffered "guilt by association" due to their proximity to their Western neighbors.

    Eastern Europe is very export dependent on developed Europe. More than 80 percent of Czech and Hungarian exports and about 50 percent of Polish and Turkish goods head to Western Europe.

    So with economic data in Europe turning positive, many investors including our team are "betting that Western Europe's return to growth after a year-and-a-half-long recession will fuel demand for cars, appliances and other goods manufactured in Eastern Europe," says the WSJ.

    This could be a powerful engine to set emerging Europe on a huge upward trajectory, closing the performance gap and even outperforming its peers.

    Additional research suggests stocks in emerging Europe could exert even more horsepower.

    According to Bank of America Merrill Lynch, stocks in the European Union area historically outperformed when U.S. interest rates rose. Over the last 40 years during periods of rising rates in the U.S., European stocks took a hit up to six months prior to the Federal Reserve raising rates. However, six and 12 months after the Fed began its rate increases, European equities have taken off.

    (click to enlarge)

    With the likelihood for rising rates and an improving Europe in our future, this research makes a strong case that emerging European companies will be experiencing a "growth by association."

    All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link above, you will be directed to a third-party website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for their content.

    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 MSCI Emerging Markets Eastern European Index (Russia at 30 percent market-cap weighted) is a capitalization-weighted index that monitors the performance of emerging market stocks from all countries that make up the Eastern European Region.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: GUR
    Sep 03 9:41 AM | Link | Comment!
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