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Gavekal Research
Trump’s Evolving Immigration Stance
Tan Kai Xian
6 Jan 2025
President-elect Donald Trump sided with Elon Musk and other supporters of the H-1B skilled worker visa, against hardliners like Steve Bannon. This is a material softening in his tone on immigration, at least the high-skilled legal variety. But it does not change the fact that US labor supply growth will be crimped by Trump’s overall strict immigration policies.
Gavekal Dragonomics
Welfare Or Wealth
Andrew Batson
6 Jan 2025
In the first days of 2025, Chinese equity markets took a leg down, long-term bond yields hit all-time lows and the renminbi weakened. The government’s promises of more stimulus have not been enough to stabilize expectations. What signals could be more decisive? Andrew makes the case that the most effective policy move would be not more social-welfare support, but a more direct intervention in the property market.
Gavekal Research
And The 2024 Awards Go To…
Louis-Vincent Gave
3 Jan 2025
Louis reviews the best trades of 2024 and explores their prospects for the coming year. In his sights are cryptocurrencies, gold, US growth stocks, Chinese bonds and the comeback emerging market of Argentina. In a follow-up report, he will look at 2024’s worst performers and consider whether they will remain raspberries or, in fact, offer improving prospects.
Gavekal Research
China And The US: Different Views Of Market Performance
Charles Gave
3 Jan 2025
Conventional wisdom says the US equity market is the world’s best stock market, while China’s is pretty much the worst one. Charles has little time for such well received nostrums. He compares the two markets to find that in US dollar terms, China has been outperforming the US.
Gavekal Dragonomics
How Much To Fear Trump’s Tariffs?
Andrew Batson
The Trade War Artillery Moves Into Place
Arthur Kroeber, Thomas Gatley
The Shaky Sentiment Recovery
Wei He, Dragonomics Team
A Durable Policy Shift For 2025
Andrew Batson
Policy Signaling Works
Christopher Beddor
China’s Export Controls Send A Serious Signal
Tilly Zhang
Decoupling, Grand Bargain, And Everything In Between
Arthur Kroeber
Paying Late State Bills
Xiaoxi Zhang, Thomas Gatley
The Chinese Consumer In 2024
Ernan Cui
The Winners In Import Substitution
Tilly Zhang
More Research
Divergent Trends
Louis-Vincent Gave
A Time To Rejoice
Louis-Vincent Gave
International Liquidity: Back To London In The 1960s
Charles Gave
Higher For Longer
Will Denyer
The Crypto Capital And The (Non) Strategic Bitcoin Reserve
Will Denyer
Muddled Messages
Udith Sikand
The Upside Of Political Turmoil
Cedric Gemehl
The Relentless March Of American Exceptionalism
Louis-Vincent Gave
The Absent Rebalancing
Louis-Vincent Gave
The ECB’s Best Is Yet To Come
Cedric Gemehl
Gavekal Research
The Relentless March Of American Exceptionalism
Louis-Vincent Gave
16 Dec 2024
With 4% of the world’s population, roughly a quarter of global GDP and a third of global profits, the US now accounts for more than two thirds of the MSCI World index’s capitalization. Such an imbalance has not been seen since the late 1980s, when Japan accounted for 45% of the global equity benchmark despite contributing less than a fifth of world GDP. Louis considers the exceptional factors which have granted the US this benefit, but wonders what may cause them to unwind.
The global view
And The 2024 Awards Go To…
Louis reviews the best trades of 2024 and explores their prospects for the coming year. In his sights are cryptocurrencies, gold, US growth stocks, Chinese bonds and the comeback emerging market of Argentina. In a follow-up report, he will look at 2024’s worst performers and consider whether they will remain raspberries or, in fact, offer improving prospects.
Divergent Trends
The last quarter of 2024 saw many “right tail events”, such as the huge outperformance of US growth stocks versus value stocks. Lost amid this excitement was a rare development: a surge in 10-year US government bond yields and collapse in 10-year Chinese government bond yields.
A Time To Rejoice
If it bleeds, it leads is the mantra for most news media. Under the constant barrage of bad news, it is easy to overlook the positive. So Louis uses use the last Gavekal Daily before Christmas to highlight some of 2024’s cheerful events.
The Relentless March Of American Exceptionalism
With 4% of the world’s population, roughly a quarter of global GDP and a third of global profits, the US now accounts for more than two thirds of the MSCI World index’s capitalization. Such an imbalance has not been seen since the late 1980s, when Japan accounted for 45% of the global equity benchmark despite contributing less than a fifth of world GDP. Louis considers the exceptional factors which have granted the US this benefit, but wonders what may cause them to unwind.
Test Your Knowledge
In 2022, which non-EU country accounted for the highest domestic value-added in the European Union’s automotive industry?
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Chart of the Week
With a 4.6% dividend yield—more than twice the yield provided by the overall US equity market—US office REITs present a good dividend play amid the otherwise continuous decline in US stock market dividends. This yield is similar to that offered by 10-year US treasuries, with the added benefit that rental income generally rises with inflation.
Open Chart
Gavekal Research
Essential Reading: A Book For Every Week Of The Year
Gavekal is often asked for a recommended reading list. So, here it is: a book a week that everyone interested in the world of macro investing—whether hoary veteran or eager apprentice—can benefit from reading.
US economy & markets
Trump’s Evolving Immigration Stance
President-elect Donald Trump sided with Elon Musk and other supporters of the H-1B skilled worker visa, against hardliners like Steve Bannon. This is a material softening in his tone on immigration, at least the high-skilled legal variety. But it does not change the fact that US labor supply growth will be crimped by Trump’s overall strict immigration policies.
Higher For Longer
Did we just see the last Federal Reserve rate cut for a while? No one knows, including Fed chair Jerome Powell. But after the Fed cut by -25bp on Wednesday, Powell said the decision had been a “closer call” than previous cuts, and that policymakers will likely be “more cautious” about future easing. Powell’s guidance for slower, more cautious rate cuts should be taken seriously.
The Crypto Capital And The (Non) Strategic Bitcoin Reserve
Bitcoin has broken through US$100,000 on the belief that Trump 2.0 will be friendlier to the crypto industry. The question for investors is whether the surge in crypto-currency prices since the US election can be sustained. Will argues that the price gains have been driven by two main hopes, one of which is justified and the other of which may not play out as crypto bulls hope.
A Pick-Up In Confidence—And Inflation
US inflation quietly rebounded over October and November, and is now running slightly above the Fed’s inflation target. It is too soon to call a new trend, but this pick-up raises the question whether further Federal Reserve rate cuts are warranted. This question is potentially bad news for US equities and bonds, and supportive for the US dollar.
Gavekal Research
Webinar: The Tough Case For Europe
Louis-Vincent Gave, Anatole Kaletsky, Yanmei Xie, Cedric Gemehl
6 Dec 2024
With the fall of French prime minister Michel Barnier’s three-month-old government, reasons are mounting to be grumpy about Europe. Our panel considers all the relevant factors, yet also ask whether the gloom is overdone given that almost no one is asking what happens if things go right, or prove to be not as bad as expected.
Emerging markets
Video: Southeast Asia Under Trump 2.0
Global investors are rightly focused on the potential losers from the United States pursuing an aggressively protectionist trade policy agenda, but there may be winners as well. Tom went in search of such economies last week. Today he explains how such “swing states” are likely to perform in an intensified period of great power rivalry between the US and China.
China Turbocharges EM Investment
As the rich world pulls up the protectionist drawbridge, investors risk missing a bigger story
in emerging markets. Here, Chinese outbound investment is rebounding after the fallow Covid years, and is driving a new wave of industrialization that promises to lower the cost of the green-energy transition.
Why This Time Has Been Different
During past episodes of risk-off volatility, the correlation between emerging market risk assets has shot up. But early August’s bout of market volatility saw a bifurcation in EMs, and no broader macroeconomic spillover effects—which speaks well of the growing maturity of emerging markets as an asset class.
Video: The Yen Carry Trade And Emerging Markets
Usually when developed market volatility spikes, the world’s emerging markets fall victim to collateral damage. Things have been less simple this time around. Although Latin American currencies, especially the Mexican peso, have been hit hard by the unwinding of the yen carry trade, East Asian currencies have risen strongly. Udith Sikand explores what lies behind the divergence.
Latest video
Gavekal Research
Video: Europe’s Unloved Bull Run
Cedric Gemehl
12 Dec 2024
Over the last 18 months, eurozone bank stocks have outperformed the broad market by a factor of three. But since the US presidential election, they have given back some of those gains. In this video interview, Cedric examines what has driven the bull run in European bank stocks to determine whether the rally has now reached its end, or whether it has further to run.
India chartbook
Gavekal Research
India Macro Update: A Normal Slowdown
Udith Sikand, Tom Miller
10 Dec 2024
Despite consternation over the sharp deceleration in GDP growth, India’s economic slowdown looks cyclical rather than structural, argue Udith and Tom. A continued pickup in private consumption together with a revival of government spending is expected to improve the growth outlook in the near term.
China chartbook
Gavekal Dragonomics
The Chinese Consumer In 2024
Ernan Cui
25 Nov 2024
China’s consumption growth has weakened for most of 2024, as the property-market downturn has softened the labor market and eroded household balance sheets. But since late September, policymakers have pivoted to a more stimulative approach to economic policy. In her annual chartbook, Ernan breaks down the key cyclical and structural drivers for household consumption, and examines how the stimulus could change the current trajectory.
Europe's economy
The Upside Of Political Turmoil
Investors generally regard political turmoil as unwelcome. The German government’s toppling and the fall earlier of the French government are no exceptions. Yet a rational optimist can find good reasons for cheer in the political upheavals convulsing the EU’s two leading economies. The fears of a procyclical fiscal consolidation that have loomed over the eurozone’s growth outlook for much of the last year have now been dispelled. For investors, this no small silver lining.
The ECB’s Best Is Yet To Come
On Thursday, the European Central Bank cut its deposit facility rate by -25bp to 3%. This brought its cumulative reduction in interest rates since June to -100bp. More importantly, the ECB sent at least three strong signals that more rate cuts are coming in the first half of 2025.
The Euro Leg’s Poor Gait
A week ago, the euro fell below the key support of US$1.05, which had held since December 2022. Despite the common currency having steadied on the announcement of Scott Bessent being President-elect Donald Trump’s pick for US treasury secretary, Europe’s weak fundamental position still raises the question of whether parity against the dollar is coming into view.
Testing The Barnier Put
On Tuesday, the European Commission said that France had set out a credible fiscal plan
to make its debt sustainable. The good news stops here, as France’s latest fiscal plan likely exceeds the shelf life of Barnier’s government. Cedric examines the political and economic tightrope France's government is walking and the impact on French bonds.
Strategy Chartbook
Gavekal Research
US Strategy: Trading Politics
Will Denyer, Tan Kai Xian
27 Aug 2024
In November, US voters will decide who controls the White House, Senate and House of Representatives. The two parties differ significantly on key policy positions that will heavily impact the economy and markets. In this Strategy Chartbook, Will and KX compare the parties’ major policy stances and assess what they mean for markets—especially US equities, US bonds and the US dollar.
Equities
And The 2024 Awards Go To…
China And The US: Different Views Of Market Performance
Divergent Trends
Conversation: Assessing The 2025 Tail Risks
Video: Chinese Equities In 2025
Impressions From The Road: Part 1
Oil & commodities
The Syrian Revolution
Conversation: What Could Derail The Inflationary Boom
Hedging The Inflationary Bust
The Energy Faceplant
Who Is Going Bust?
Video: Beyond The Slide In Energy Prices
China tech
China’s Export Controls Send A Serious Signal
Xi Goes All In On Tech
Webinar: Setting The Agenda For China's Plenum
The Localization Drive Steps Up
After The Melt-Up In Semiconductors
Vietnam’s Bamboo Diplomacy
Then Yen Carry Trade Unwinds
Video: The Yen Carry Trade And Emerging Markets
Usually when developed market volatility spikes, the world’s emerging markets fall victim to collateral damage. Things have been less simple this time around. Although Latin American currencies, especially the Mexican peso, have been hit hard by the unwinding of the yen carry trade, East Asian currencies have risen strongly. Udith Sikand explores what lies behind the divergence.
More Questions Than Answers
It’s a dedicated Frenchman who consents to work in August. But the financial market volatility of the last week has seen Louis hard at it, fielding client questions about the outlook for global markets and economies. In this paper, he sets out the most salient questions, and offers his answers.
The Root Cause Of Summer Ructions
Investors are no longer seeing virtue in a Goldilocks scenario of moderating demand and easing price pressures, but having a summer freak-out over faltering global growth. Udith and Kai Xian diagnose the market jitters and say that the sell-off in high-yield currencies and tech stocks likely stems from movements in Japan rather than disappointing US economic data.
The Yen And Deindustrialization
There is a theory out there which holds that the extreme undervaluation of the yen is a consequence of Japanese deindustrialization, as Japan Inc. has shipped its factories abroad, pushing Japan's economy into an irreversible trade deficit even while it continues to run a monster current account surplus. Not so fast, says Charles, whose analysis of Japan’s external balances throws up a different explanation—and suggests a compelling investment opportunity.
