Historical Chart of Cash Invested in SPDR Gold ETF

Gold prices have declined consistently in the past few years while stocks have soared. At the height of the global financial crisis, experts predicted gold could reach $2,000 easy and even go higher and higher forever. It did not turn out that way. When stocks collapsed investors poured money into gold especially the highly popular SPDR Gold Shares ETF(GLD). At its peak, the fund had over $80 billion in assets. Since then investors have pulled out billions and currently the fund has about $22 billion in assets.

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SPDR Gold ETF Cash Chart

Source: Chart of the week: gold loses its lustre, MoneyWeek

Currently gold is trading at about $1,053 an ounce.

The key point to remember is investing in gold is not a bulletproof strategy. Just like any other asset gold prices can go up as well as go down. Hence just because stocks crash does not mean investors should dump all their assets into gold and vice versa.

How Do US States Rank In Integrity And Corruption ?

According to a recently published report by The Center for Public Integrity, most US states rank poorly in integrity, ethics and corruption.This study was focused on only the state governments and not the Federal government.

Here is an excerpt from the investigative report:

In November 2014, Arkansas voters approved a ballot measure that, among other reforms, barred the state’s elected officials from accepting lobbyists’ gifts. But that hasn’t stopped influence peddlers from continuing to provide meals to lawmakers at the luxurious Capital Hotel or in top Little Rock eateries like the Brave New Restaurant; the prohibition does not apply to “food or drink available at a planned activity to which a specific governmental body is invited,” so lobbyists can buy meals so long as they invite an entire legislative committee.

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US State Integrity Ranking

Such loopholes are a common part of statehouse culture nationwide, according to the 2015 State Integrity Investigation, a data-driven assessment of state government by the Center for Public Integrity and Global Integrity. The comprehensive probe found that in state after state, open records laws are laced with exemptions and part-time legislators and agency officials engage in glaring conflicts of interests and cozy relationships with lobbyists. Meanwhile, feckless, understaffed watchdogs struggle to enforce laws as porous as honeycombs.

Take the Missouri lawmaker who introduced a bill this year — which passed despite a veto by the governor — to prohibit cities from banning plastic bags at grocery stores. The state representative cited concern for shoppers, but he also happens to be state director of the Missouri Grocers Association, and is just one of several lawmakers in the state who pushed bills that synced with their private interests.

Or the lobbyist who, despite a $50 cap on gifts to Idaho state lawmakers, spent $2,250 in 2013 to host a state senator and his wife at the annual Governors Cup charity golf tournament in Sun Valley; the prohibition does not apply to such lobbying largess as long as the money is not spent “in return for action” on a particular bill.

In Delaware, the Public Integrity Commission, which oversees lobbying and ethics laws for the executive branch there, has just two full-time employees. A2013 report by a special state prosecutor found that the agency was unable “to undertake any serious inquiry or investigation into potential wrongdoing.”

And in New Mexico, lawmakers passed a resolution in 2013 declaring that their emails are exempt from public records laws — a rule change that did not require the governor’s signature. “I think it’s up to me to decide if you can have my record,” one representative said.

Source: Only three states score higher than D+ in State Integrity Investigation; 11 flunk, The Center for Public Integrity

The full article is worth a read. You can find it here.

Why Invest In Emerging Asian Market Stocks

Emerging market equities should be part of a well diversified portfolio. As an asset class, emerging stocks generally tend to more volatile than developed equities. Despite the volatility investors should allocate some portion of their portfolio’s assets to emerging markets.

One of the reasons for holding stocks from the developing world is that economic growth in these markets  is stronger during periods of expansions relative to the developed world. As a result, investors can earn a higher return by investing emerging equities. Another reason to invest in emerging markets is that they usually trade at a discount to developed markets. This is because investors are willing to pay a premium for developed equities for many reasons such as transparency, governance, political stability, etc. that are not widely prevalent in most emerging markets.

Let us discuss this concept using Asian as an example. The chart below shows Asia’s weight in the world:

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Asian Economy in World

Source: The butterfly effect, Barclays

From a global perspective, Asian countries account for about 60% of the world population. Two of the world’s most populous countries with populations exceeding more than a billion – China and India – are in Asia. More importantly, in terms of global GDP, Asia’s contribution is about 30% which is substantial. However when we compare Asia equities to global equities, Asia accounts for less than 10%.

So though Asian economies contribute 30% of the global GDP, Asian equities amount to under 10% of global equities. As mentioned earlier, this is because emerging Asian equities trade a discount to developed equities. However as Asian economies grow, over time this gap should decline. Hence investors looking to diversify can consider adding Asian emerging stocks in a phased manner.

Some emerging Asian stocks to consider include:

China – PetroChina Co Ltd (PTR) and Sinopec Corp (SNP)

India – ICICI Bank Ltd(IBN), HDFC Bank Ltd (HDB), Dr. Reddy’s Laboratories Ltd. (RDY) and Infosys (INFY)

Taiwan – Taiwan Semiconductor Manufacturing Co Ltd (TSM)

Philippines – Philippine Long Distance Telephone Co (PHI)

Disclosure: No Positions

Knowledge is Power: Mobius on China, Commodities, Indian Economy Edition

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