- delivered on Tuesday to the U.S. Forest Service and the Bureau of Land Management to be presented to the U.S. Secretaries of Interior and Agriculture. The signatures are being presented in response to proposals for nickel strip mining in the area, in anticipation of the proper environmental assessment, as conservation groups seek to protect the lands from “destructive” mining.
- HSBC precious metals analysts argue that the path of least resistance for gold may be lower. According to the bank’s analysts, while a possibility for further build in gold’s price due to geopolitical tensions cannot be discounted, these gains tend to be fast-moving, and the bulk of the gains appear to have been made. Similarly, Credit Suisse is of the opinion that disinterest from gold investors in China and India will weigh on demand as the seasonal buying slows down toward the end of the summer.
- In 2010, the market value of Petropavlovsk PLC exceeded $3 billion. The company then borrowed more than $1 billion to expand production at its mines in Far East Siberia, just before the dozen years of gold-price gains ended abruptly in 2013. Today, the company’s market share is around $110 million, dwarfed by about $819 million in debt that absorbs any cash flow generated from its mines. The cash flow is insufficient and more money must be borrowed by Petropavlovsk, a less likely event now that Russian banks are being punished by Western sanctions.
Energy and Natural Resources Market
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China Region Fund – USCOX • Emerging Europe Fund – EUROX
Emerging Markets
Strengths
- Egypt was the best-performing market this week as the country’s highest Muslim religious authority refused to approve death sentences imposed on senior leaders of the Islamist Muslim Brotherhood. In addition, Egyptian steel tycoon Ahmed Ezz, a senior member of Mubarak’s ruling National Democratic Party, was released on bail after spending three years in detention. The news gives hope for political calm at a time when Egypt is said to plan a new Suez Canal, which will require $4 billion in financing, but will boost annual revenues to $13.5 billion.
- Technology was the best-performing sector in emerging markets this week, led by Asian blue-chip software, hardware and Internet companies, as investors remained optimistic going into the earnings season. A majority of U.S. large-cap technology companies reported during the week and surprised on the upside.
- China received another equity fund inflow of $1.6 billion for the week ending August 6, 2014, by far the strongest recipient of global liquidity influx among emerging markets. Investor expectations stayed buoyant on loosening government curbs on property along with the imminent launch of a mutual-market access program between Shanghai and Hong Kong.
Weaknesses
- Greece was the worst-performing emerging market for the week as positive macroeconomic data was overshadowed by concerns the tourist industry will be affected by Russian sanctions. Preliminary estimates show that tourist arrivals from Russia and Ukraine will drop by 375,000 tourists, forgoing tourist revenues of approximately 300 million euro.
- Financials was the worst-performing sector within the emerging markets complex, led lower by African Bank which dropped 95 percent in South Africa this week. The bank, whose chief executive officer resigned, said losses would be at a record this year and the bank would need to tap investors for funds for the second time in less than a year.
- Macau-based casino operators were among the worst-performing sub-industries in Hong Kong this week, as the 17-percent year-over-year gain in mass market gaming revenue in July marked the weakest monthly growth since 2010 for the category. Aggregate gaming revenue posted a second-consecutive month of decline.
Opportunities
- Global investors have been net buyers of Chinese equity for the past nine weeks, with a total $6.6 billion injection. This comes in response to various signs of favorable economic policy and potent political leadership on top of low absolute and relative stock valuation, a distinct reversal from $3.6 billion net redemptions in 2013. Rising global portfolio allocation to China might sustain itself in the near future if Russian investors and corporates continue to move capital to Hong Kong to preempt further deterioration of relations between Russia and the West.
- French utility, Electricite de France (EDF), may join a bid to invest in new nuclear reactors in Poland. EDF faces a weaker market at home after the French government announced plans to reduce the share of nuclear energy in the country’s power output. Meanwhile, Polish utility Polska Grupa Energetyczna (PGE) aims to sell a non-controlling stake in the planned Polish nuclear project to a foreign investor, a process which has drawn sizeable interest and will bring foreign investment, infrastructure development and economic benefit to the country.
- Reservoir Minerals announced it has started a first-phase exploration drilling program on its 100-percent owned Nikolicevo permit in the Timok Magmatic Complex in eastern Serbia, where the company has a joint venture with Freeport McMoRan. The company plans to drill 13,000 meters in the gold-copper porphyry, which showcases one of the highest copper grades among all development projects globally.
Threats
- Escalating trade sanctions between Russia and Western nations over Ukraine are hurting Poland more than other major economies in the region because of its stronger trade ties with Russia. The purchasing managers’ index (PMI) for Poland, the largest of the European Union’s (EU’s) post-Communist states, fell for a fifth-consecutive month in July, decoupling from the Czech Republic and Hungary, the two next -biggest economies in central Europe, according to a Bloomberg report. Polish exports to Russia have dropped 8.3 percent in the first five months of 2014, even before Russian sanctions where announced.
- Russian price increases peaked at more than 2,500 percent in the 1990s. Russian import bans on an array of food goods from Western nations may fuel food inflation even further. Food inflation rose at an annual rate of 9.2 percent in July, bringing back old memories of tougher times and fear as inflation expectations are becoming unanchored. The central bank said it is prepared to keep boosting the benchmark rate as a means to control inflation, even as higher borrowing costs threaten to tip the economy into a recession.
- Since the Second-Child Policy was approved in China earlier this year, eligible couples have been slow to embrace looser restrictions based on provincial statistics. Growth prospects of China’s mass consumer sector, such as infant foods and diapers, has significantly diminished due to structural migration to e-commerce and rising competition to name brands.
© US Global Investors
