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E.g., 25-09-2017
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    Gavekal Research

    Mind The (Output) Gap

    The US economy is offering up conflicting signals. Recent manufacturing survey data has been soft, auto sales have slowed and the rate of job creation has markedly reduced. At the same time, inflation expectations have dipped after their bolt upwards earlier this year. Yet, redirect the gaze and the same US economy shows distinct signs of waddling towards a late cycle denouement with the labor market, in particular, looking tight. Put another...

    2
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    Gavekal Research

    May Day For Hard Brexit

    After the Conservative government of UK prime minister Theresa May lost its parliamentary majority in last week's general election, Anatole argues that the "hard Brexit" strategy formerly pursued by May no longer looks politically viable. That means a Norwegian-style soft Brexit is more likely, which makes sterling assets look relatively attractive.

    3
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    Gavekal Research

    Audio & Transcript — Gavekal Research June Call

    Anatole Kaletsky responded to the British Conservative Party’s shock loss of their electoral majority by arguing that the UK is now likely to end up with a soft Brexit and may even end up rejoining the European Union. Louis Gave looked across recent market moves and argued that the case for emerging markets remains exceptionally strong.

    0
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    Gavekal Research

    Video: Breaking The Yen-Equity Link

    Japanese equities recently touched a 17-year high in US dollar terms and perhaps more significantly, they appear to have decoupled from their usually tight inverse relationship with the yen. In this video interview Neil considers both cyclical and structural reasons for the apparent breakout and concludes that investors should not underweight a market that has plenty of tailwinds.

    0
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    Gavekal Research

    Back To Sanity In Japan

    I know, or I believe I know, that over thelong term equity returns follow one thing only: corporate earnings. As an example, look at Japan. If I rebase both the Topix price index and corporate earnings to 100 in 1978, I find that today the market is at at 385, and earnings are at... 385. Spot on!

    3
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    Gavekal Research

    Goldilocks Beds Down

    Headline attention today is clearly focused on the car-crash general election result for UK prime minister Theresa May. At the time of writing, it was still unclear whether May would be able to form a viable government after the vote. Unsurprisingly, the uncertainty triggered a steep 1.6% sell-off in sterling (see Trading The UK Election).

    1
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    Gavekal Dragonomics

    CEQ: China In The Asia-Pacific

    China is attempting to become Asia’s new leader. The high costs of confronting it mean that the US’s regional influence is likely to dwindle. But widespread distrust of China means that many countries will continue to prefer investment from the EU, US and Japan. This issue of China Economic Quarterly investigates China’s role in the Asia-Pacific.

    0
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    Gavekal Dragonomics

    US-China Power Shift: Not So Fast

    Do Donald Trump’s miscues ensure the eclipse of Pax Americana by a rising China? Not yet.

    0
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    Gavekal Dragonomics

    The Belt And Road To Leadership

    China’s Belt and Road Initiative elicits widespread skepticism and concern, while the Regional Comprehensive Economic Partnership is often seen as a poor cousin of the aborted Trans-Pacific Partnership. But they are currently the only credible plans for greater Asian integration.

    0
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    Gavekal Dragonomics

    After The Pivot, It’s Bye-Bye Asia

    With the costs and risks of confronting China growing by the day, the most likely scenario for the Asia-Pacific is one of steadily dwindling US influence. This is good news for Beijing and its claim to regional leadership.

    0
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    Gavekal Dragonomics

    High-Speed Rail Blues

    While China’s trade with Southeast Asia flourishes, a lack of experience has left its investment in the region lagging far behind. For now, Southeast Asian countries will continue to work with Japanese, EU and US institutions—regardless of how attractive China’s initial bids are.

    0
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    Gavekal Dragonomics

    The Regulatory Storm

    The past few months saw a flurry of regulatory measures to tackle risks in the financial system. Beijing is trying to avoid a credit crunch, but the effect on the economy will depend on how far these measures are implemented.

    0
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    Gavekal Dragonomics

    The Export Upgrade Challenge

    Shifting China’s industrial production from low-margin assembly to high-value, technology-intensive goods has long been the Holy Grail for planners. Export data show a lot of progress, but also an enduringly high reliance on foreign components, technology and management.

    0
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    Gavekal Dragonomics

    Still Holding High Mao’s Banner

    Within China’s increasingly restrictive political landscape, neo-Maoists continue to thrive. Tolerated for now as Xi’s ideological allies, they could turn into his fiercest opposition should he surprisingly uphold his Third Plenum pledge to give a “decisive role” to the market.

    0
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    Gavekal Dragonomics

    Whatever Happened To Hong Kong?

    Its return to China was greeted with cautious optimism, but Hong Kong’s past 20 years have disappointed. Tepid growth amplified inequality and bred political dissatisfaction. What happened since 1997? And what can we expect for the future?

    0
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    Gavekal Dragonomics

    The East Is Rising … Isn’t It?

    Will the Asia-Pacific region will shape global politics and economics in the 21st Century, as the West’s centuries-long domination of world affairs draws to a close, or will unseen threats in Asia, from economic stagnation to political unrest and growing military tensions, throw a spanner in the works? Tom Miller reviews two books that each present their case.

    0
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    Gavekal Research

    EMs And A Chill Trade Wind

    The Asian trade cycle, having perked up notably since mid-2016, shows worrying signs of rolling over. Korean export growth in May halved from a month earlier, while Taiwan has seen the same measure steadily slow since February. Today, China reported a reduction in export growth to single digit levels, while import demand growth for May fell to 15% YoY, compared to 38% in February. To an extent, this can all be explained by flattering base...

    1
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    Gavekal Research

    Trading The British Election

    Anyone who claims to be confident about the outcome of tomorrow’s UK election is really just guessing, which is why we have advised against taking big positions in sterling assets—either long or short—before the exit polls are released. But from 10.01pm onwards, the currency markets could start to see major moves that are very tradeable in one direction or another. So for clients who got hooked on overnight currency trading after profitable (or...

    3
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    Gavekal Dragonomics

    The Iron Ore Slump Nears Its End

    China’s iron ore price is now down by about a third from its peak in February. In this piece, Rosealea reassesses the market in light of this correction, and argues that the price is unlikely to stay substantially below US$60 per ton for long. That’s because domestic miners responding to low prices by cutting output, helping rebalance the market.

    1
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    Gavekal Research

    Policy & Productivity: How To Make America Great Again

    A critical and much-debated question about the US economy is whether it is permanently stuck in a “new normal” of 2-2.5% annual growth—about a point below the 3.2% average growth rate in 1970-2000—or if it can regain its previous luster. Will assesses arguments from both the upbeat techno-optimists and the grizzled growth skeptics and updates his own view based on US policymaking in the age of Trump.

    5
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    Gavekal Research

    Figuring Out Where The Ball Will Be

    Rugby players fall into one of two categories: the forwards, who typically go where the ball is (and in the process put their heads in places most sane people wouldn’t put their feet), and the backs, who try to go where the ball will be, which enables them to look good and keep their kit clean, but earns them the scorn of the forwards. Peter FitzSimons, the first Aussie to play for a French club (Brive), once remarked: “Come the revolution, the...

    2
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    Gavekal Research

    What Is The Signal In The Renminbi’s Surprising Strength?

    Over the past week and a half, the renminbi has appreciated 1.1% against the US dollar in the onshore market, and 1.5% offshore, where the PBOC has also engineered a spike in short-term interest rates. It seems China wants to send a signal about the renminbi, but markets are having trouble decoding what it is. Andrew outlines three possible strategies the central bank may be following.

    0
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    Gavekal Research

    Getting By Without Friends

    After a week spent in Europe antagonizing fellow democratic leaders, conspicuously failing to reaffirm the US’s commitment to defend its NATO allies, and driving Angela Merkel into an uncharacteristically histrionic speech about Europe’s need to go it alone on security policy, Trump came home and announced he is pulling the US out of the Paris Agreement on climate change.

    0
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    Gavekal Dragonomics

    Leadership Scenarios For The Party Congress

    The key event in China’s political calendar is now just a few months away. The 19th Party Congress will reveal who will join top leader Xi Jinping in the ruling Politburo Standing Committee, and in the process provide clues to China’s political future. In this piece, Yanmei outlines different possible scenarios and explains their implications.

    0
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    Gavekal Research

    My Whole Career In One Chart

    My career in financial markets started in January 1971, half a year before Richard Nixon changed the basis of the post-WWII financial order by ending gold convertibility for US dollars. Hence, I thought that readers may be interested in a chart below that tells a simple story of those years, while also offering an asset allocation tool that for me has proven invaluable. In short, it is the story of running a balanced portfolio.

    1
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    Gavekal Research

    Strategy Monthly: Building A Globally Diversified Portfolio

    Successful money management is more about avoiding losers than picking winners. The winners of the last decade have mainly been large-cap US equities; this increases the odds that they will underperform in coming years. In this edition of the Strategy Monthly Louis Gave recommends a rotation into eurozone equities, and EM stocks and yield plays (especially in Asia).

    0
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    Gavekal Research

    The UK’s Pre-Election Wobble

    In mid-April, when UK prime minister Theresa May took the decision to call a general election for June 8, she did so because she was confident her Conservative party would be returned to government with a massively increased parliamentary majority. Six weeks later, and with just one week of campaigning still to go, that confidence is a distant memory.

    0
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    Gavekal Research

    New York Seminar — May 2017

    Louis Gave, Charles Gave, Tom Miller and Arthur Kroeber presented at Gavekal's New York seminar last week.

    0
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    Gavekal Dragonomics

    Time To Buy Renminbi Bonds?

    Driven by a reflating economy and tightening financial conditions, Chinese bond yields have now risen back to their levels of late 2014. For foreign investors, the combination of higher yields, less currency risk, and some additional opening of the domestic market could make the second half of 2017 an attractive time to get into renminbi bonds.

    2
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    Gavekal Research

    Stimulus Gets More Direct In Japan

    Fresh reflation ideas are back on the agenda in Japan as inflation shows no sign of rising despite record stimulus and a tight labor market. Prime Minister Shinzo Abe is focused on hard-pressed 30-somethings who continue to save furiously in part as they must fund their children's higher education. His idea is to ease the burden and hopefully spur a step change in consumption spending.

    0
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    Gavekal Research

    Déjà Vu All Over Again

    Three months ago, I took over the management of our global equities managed accounts and our global equities fund (GAVPLAT:ID for those who care to follow its progress). And so, like every equity manager out there, I was forced to confront the single most important question in the markets today: Does one buy into the “hot” tech stocks that keep on pushing higher? Or does one give the Amazons, Facebooks, Googles and Alibabas of this world a wide...

    8
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    Gavekal Research

    Still No Real Recovery In US Profits

    After a very strong corporate earnings season, Friday delivered the first estimate of profits as tallied by the US national income and product accounts, or NIPA. Unfortunately, the NIPA data pours cold water over the notion that the US is seeing a real, widespread recovery in profitability. The nonfinancial corporate sector of the US economy (not exactly a niche segment) is experiencing nothing of the sort. Instead, real profitability continues...

    4
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    Gavekal Research

    Decoding The HK Dollar’s Signals

    When Moody’s downgraded China’s credit rating this week, it also downgraded Hong Kong. Although Hong Kong is fiscally autonomous, and has seen no rapid build-up in leverage comparable to the mainland, Moody’s still downgraded the territory from Aa1 to Aa2. In explanation, the agency cited Hong Kong’s “tightening economic, financial and political linkages with the mainland,” which it warned “risk introducing more direct contagion channels”...

    0
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    Gavekal Research

    What The Fed Really, Really Means

    The Federal Open Market Committee has fired the starting gun on its plan to start shrinking the US central bank’s balance sheet before the year is out. The language was coy, but indicated a consensus that outright contraction will start so long as the trajectory of growth and the key policy interest rate matches the committee’s expectations.

    2
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    Gavekal Dragonomics

    The Return Of Regulated Coal Prices

    Coal was the most volatile commodity price in China last year, but it has been remarkably stable in 2017. In this piece, Rosealea explains how the government has revived a contract system of regulating coal prices, in the place of campaigns to cut or raise coal output. Coal prices are thus likely to stay at their relatively high levels for longer.

    0
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    Gavekal Research

    German Ordo-liberalism vs French Keynesianism

    So I hear that happy days have returned to Europe’s single currency area as shown by improved purchasing manager readings. With German firms especially upbeat and a reassuring new fellow occupying the Élysée Palace, I understand that Berlin will soon roll over and allow a juicy fiscal expansion in return for France making its job market less rigid. I tend to be skeptical about such road-to-Damascus conversions.

    1
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    Gavekal Dragonomics

    Beijing’s Non-Capital Idea

    China wants to build a new satellite city to take over Beijing’s “non-capital functions,” and their associated workers. In this piece, Tom Miller examines the Xiong’an New Area and the government’s grand plans to cap Beijing’s population and spread wealth to surrounding regions. He finds the economic benefits are unlikely to outweigh the costs.

    0
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    Gavekal Research

    India Macro Update: Navigating The Fog

    In this regular quarterly update, Udith and Tom survey the key developments in India’s macro-economy and markets, which have been clouded by the demonetization episode and yet more changes to national economic statistics. The fog may not be about to clear as the government prepares to rollout a new national goods and sales tax with the potential for significant economic disruption.

    0
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    Gavekal Research

    Video: India's Economic Fog

    In this interview Udith discusses the key developments in India’s macro economy and markets, which have been clouded by the demonetization episode and yet more changes to national economic statistics. The fog may not be about to clear as the government prepares to roll out a new national goods and sales tax with the potential for significant economic disruption.

    0
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    Gavekal Research

    Don’t Buy The Smartphone Hype

    As Apple prepares to launch its anniversary iPhone and Samsung unveils models that don’t blow up, technology equities in the US and Asia have soared on hopes for a new smartphone cycle. After 2016 saw high-end smartphone sales fall, investors are betting that consumers respond to gee-whizz gadgetry by replacing their devices more often. We are not so sure.

    0
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    Gavekal Research

    ECB Normalization And Why Not To Worry About It

    The US Federal Reserve will almost certainly announce the second of this year’s rate hikes at its next policy meeting on June 14. The week before, on June 8, the European Central Bank will probably state for the first time in years that the risks to the eurozone are now balanced “symmetrically” instead of tilting unequivocally downwards. If they were brave they might even echo Benoit Coeuré, the French governing board member who in an interview...

    1
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    Gavekal Research

    Brazil: Better Than Last Time Around

    A year after Dilma Rousseff’s ouster, Brazil again faces political tumult. Impeachment calls have come thick and fast following the release last week of an incriminating taped conversation between President Michel Temer and a businessman. The worry is that a fragile coalition of interests that has been inching Brazil toward meaningful economic reform falls apart, sparking renewed market panic. Such fears are overstated as this time, both left...

    0
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    Gavekal Dragonomics

    Corporate Deleveraging Is Ending, Not Beginning

    The recent financial crackdown may give the impression that “China is finally getting serious about corporate deleveraging.” This impression is wrong: while leverage is already declining, this is likely to stop in 2017. Worries about zombie companies have also faded as rising profits and falling rates make it easier to service corporate debt.

    6
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    Gavekal Research

    A Less Flexible Britain

    Yesterday saw the release of robust UK retail sales data for April that reversed a weakening trend and pointed to still strong consumers. So it was notable that on a day that confirmed British economic resilience despite attendant uncertainties, Prime Minister Theresa May effectively renounced free market policies that long have been core tenants of the Conservative Party credo.

    1
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    Gavekal Research

    Video: Japan's Next Baby Boom

    In this interview Neil explains why the oft repeated line about Japanese couples not wanting to have many kids is a huge exaggeration. The problem is bizarre government regulations and a drastic shortage of childcare facilities. Such inhibitors to tiny feet pattering are about to get a major government-induced overhaul, and a Japanese baby boom may be around the corner. If correct, this shift in Japan’s demographic curve could have profound...

    0
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    Gavekal Research

    Longer For A Reason

    Could this be the US economic expansion without end? Almost certainly not, but it is starting to break some serious records for longevity. Yet as the expansion gets longer in the tooth, the obvious question is whether it simply withers due to old age. Like Janet Yellen, KX is suspicious of such a deterministic arguments and in this piece says there are very good reasons for economic cycles to be getting longer.

    2
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    Gavekal Research

    Don’t Sweat An Impeachment

    After weeks of ignoring ever wackier White House shenanigans, investors yesterday focused on US political risk. The revelation of memos that seem to offer prima facie evidence of the president obstructing justice means the chance of an impeachment has jumped from improbable to possible. As the government’s investigative machinery cranked up a notch yesterday, US equities experienced their worst day since last September and treasury yields fell...

    2
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    Gavekal Dragonomics

    The Great Corn Crash

    China’s “supply-side reform” measures have helped drive a recovery in prices of industrial commodities. In agricultural commodities, the name is the same, but the results are very different: the price of corn fell 44% from its peak after the government removed price supports. Now that prices have adjusted, quantities will follow: imports will fall.

    0
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    Gavekal Research

    What Germany Wants

    What does Germany want? That was a question we asked in January as sabre rattling by the new US president unnerved Europe’s instinctive mercantilist. Our answer was that Germany was at a cross-roads in its modern history and could either double down on a narrow pursuit of surpluses, or instead embrace its European Union members with a fresh push to federalism. Monday’s meeting between Emmanuel Macron and Angela Merkel confirmed that the latter...

    0
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    Gavekal Research

    Back To The Future

    Back in 1947, war was over but a ruined European economy needed full-scale reconstruction: the Marshall Plan. As I look at the way China is wooing its neighbors through its Belt and Road strategy and other economic and financial linkages, the approach looks like a remarkably effective “copy-and-paste” operation.

    2
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