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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
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Frank Talk: Insights for Investors
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Goldwatcher: Demystifying Gold Investing
  • Keeping Tabs On China's Favorites 1 comment
    Jan 23, 2014 10:06 AM

    President Obama is set to deliver his fifth State of the Union Address next week on January 28, a key opportunity for our nation's leader to comment on the well-being of the country as well as his plan for the upcoming year. Americans won't be the only ones listening to such a speech though.

    Chinese citizens will be tuning into a similar forecast in March delivered by Premier Li Keqiang, the "Annual Government Work Report." Li's report will highlight the direction of the Chinese economy in 2014, and as I like to remind shareholders, government policies are a precursor to change, so I believe the report holds significance for investors.

    Xian Liang, new co-portfolio manager of our China Region Fund (MUTF:USCOX), pointed out to me this week an interesting idea about policymakers in China. More specifically, he noted how their presence during the planning of Premier Li's speech could very well signify what's happening in the Chinese market.

    On January 17, Li invited several academics and corporate executives to give their input on what "vital" factors should be included during his annual report. Judging by the guest list, and pictures published on the government's website, Xian said it is quite clear which industries are currently favored by policymakers in the country.

    Two familiar faces caught Xian's eye as he noted Li's guest list: Lei Jun and Pony Ma.

    Circled in the picture above is Lei Jun, or the "Steve Jobs" of China. Lei founded KingSoft, Xiaomi and YY, all technology and social networking names. More recently, Lei even converted Apple investor Steve Wozniak into a user of the Xiaomi, a popular smartphone maker, instead.

    In the second picture below is CEO of Tencent Holdings Ltd, Pony Ma. Tencent is the maker of mobile app WeChat, a name you may remember me mentioning previously, which since June of 2013 has been one of the most popular free apps to be downloaded.

    With such open government policy support, we believe the technology and Internet areas are positioned to succeed in 2014.

    This is one thing we watch when managing our funds at U.S. Global Investors. The China Region Fund (USCOX) has owned both YY and Tencent Holdings Ltd, both of which are names that fall into one of the strongest three sectors in our fund, the technology sector.

    Take a look at the strongest sectors in the China Region Fund now.

    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.

    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.

    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. Holdings in the China Region Fund as a percentage of net assets as of 12/31/13: Apple Inc 0.00%, Google Inc 0.00%, KingSoft Office 0.00%, Tencent Holdings Ltd 0.00%, Xiaomi Inc 0.00%, YY Inc 1.26 %.

    Disclosure: I am long YY, .

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  • Mike Holt
    , contributor
    Comments (1538) | Send Message
     
    Great work Frank. This is an impressive research effort. I'll look forward to the "Annual Government Work Report" in March, and in the meantime I'll spend some time familiarizing myself with your China Region Fund.

     

    I'm concerned about global macro risks emanating from China, and the battle between the SEC and the Big 4 Accounting Firms with offices in China over access to records needed to investigate allegations of fraudulent accounting also makes me a little more nervous about investing in Chinese companies, but if some of the global macro risks manifest themselves, such as a credit/banking crisis in China, that could present opportunities to invest in good companies at attractive valuations.

     

    At the moment, it seems to me that the "A" shares consisting mostly of SOE's are already trading at low valuations [for good reason], while real companies that tend to list themselves on the US and Hong Kong stock exchanges offer greater earnings growth prospects and better transparency but are priced much higher. Is this an accurate perception? What are the current valuations for YY and TenCent Holdings?
    25 Jan, 10:51 AM Reply Like
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