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E.g., 18-11-2017
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    Gavekal Research

    Living With A Nuclear North Korea

    A special envoy of Chinese president Xi Jinping will head to North Korea in what is being billed as a gesture of solidarity and friendship between the two countries’ communist parties. Coming just days after Donald Trump’s visit to the region, the move appears to give the lie to Trump’s assertion that he successfully convinced Xi to “use his great economic influence” to press North Korea to give up its nuclear weapons.

    0
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    Gavekal Research

    Asset Allocation For The Global Bull Market

    On Monday Anatole outlined his fundamental reasons to believe that the world is enjoying a global bull market that still has years to run. Today he reviews the investment recommendations that flow from his thesis, and examines how investors can best play the unprecedented divergence of the US business cycle from the cycles in Europe and the emerging markets.

    2
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    Gavekal Dragonomics

    Decent Growth Risky For Bond Yields

    China’s economic data for October confirms that the moderate slowdown in growth is continuing as the housing cycle fades and government spending weakens, even as corporate earnings benefit from higher-than-expected inflation. Chen Long now sees an increasing risk for domestic bond yields in this combination, though it is bullish for equities.

    0
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    Gavekal Dragonomics

    Three Retail Takeaways From 11.11

    It was a busy weekend for China’s online retailers, who reported huge sales numbers for their November 11 promotional events. Alibaba’s aggressive strategy is helping uphold its dominance even as market growth slows, and online retail integrates with offline. In this piece, Ernan cuts through the wave of publicity with three simple points.

    0
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    Gavekal Research

    Reading China’s Financial Opening

    Friday’s surprise announcement that China will scrap its restrictions on foreign ownership of local financial institutions has been widely hailed as a major opening of the domestic market. But as Chen Long explains, while it is a significant move with positive implications for Chinese equities, it is certainly not about to change China’s financial sector landscape in any major material way.

    1
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    Gavekal Research

    This Is (Still) Not A Peak: It’s A Global Bull Market

    It was almost five years ago that Anatole started to shout loudly that the US equity market had achieved a clear breakout from its more than decade long bear market trading range. His advice has been to stick with the trend. In light of this year’s near across-the-board upward moves in risk assets globally, it would be tempting to back away from this positioning. However, in this piece he argues that the bull market is now going global and so it...

    2
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    Gavekal Dragonomics

    From Tianjin, Affordable Luxuries

    The surging population of affluent Chinese households is a key global market for all kinds of luxury goods. Foreign brands have done well in this boom, but the market is getting more competitive as local firms up their game. Thomas and Ernan report from Tianjin on two very different companies that are both succeeding in high-end niche markets.

    0
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    Gavekal Research

    A Brave New, New World?

    The traffic has been one-way. Since mid-August, the Philly semiconductors index is up 23%, the Nikkei 225 by 18%, the S&P energy index by 14% and the S&P materials index by 10%. In other words, all “deep-cyclicals” and “price monetizers” are ripping higher. So what to make of this?

    2
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    Gavekal Research

    All Pomp, No Circumstance

    President Trump’s 12-day trek through Asia promises much pomp and little circumstance. Since his administration has no strategic vision for the region and has chosen to abandon many of the tools of diplomacy in favor of overblown rhetoric and empty threats, there is little chance of material progress on any important economic or security issues.

    0
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    Gavekal Dragonomics

    The View Into 2018

    The Chinese economy has experienced a nice cyclical recovery since 2016, but now most forecasters are expecting a loss of momentum in 2018. So how is this slowdown likely to play out? In this piece Chen Long lays out his case for a gradual cooling in both real and nominal growth that will not spook global markets.

    2
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    Gavekal Dragonomics

    The Politicians Behind A Big Data Boom

    A local politician named Chen Min’er rose to prominence last week with his promotion to the Communist Party’s ruling Politburo. Chen’s main claim to fame is his transformation of Guizhou, one of China’s poorest provinces, into a supposed powerhouse of “big data.” But Chen’s real skill was in using political leverage from his ties to Xi Jinping.

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    Gavekal Dragonomics

    Housing & Construction Review 2017

    In her annual overview, Rosealea summarizes the outlook for the housing market and construction activity in China. This concise chartbook reviews the drivers of growth in 2017, digs into the key indicators and explains the core scenario for 2018: a modest correction in housing sales and prices, and a gradual slowdown in construction activity.

    0
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    Gavekal Research

    A Different Order Of Political Risk

    Investors in big technology companies, both US and Chinese, are waking up to political risk. In Washington yesterday, senators hauled lawyers for Facebook, Google and Twitter over the coals for carrying foreign-funded political advertisements during the 2016 presidential election campaign in contravention of US law. Meanwhile in China, the government is demanding representation on the boards of big internet companies, including Tencent, Alibaba...

    1
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    Gavekal Research

    Strategy Monthly: How Much Longer For Low Rates?

    For decades fixed income and equity markets have enjoyed a secular bull market, propelled higher by low real long term interest rates, depressed by a glut of global savings. In this Strategy Monthly, Will Denyer updates his Capital Provider Ratio, a powerful demographic tool which indicates that the growth of global excess savings has peaked, and that the glut will soon begin to dry up, with far-reaching consequences for global asset markets.

    0
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    Gavekal Dragonomics

    The Reconstruction Of The Administrative State

    The clear message from the Communist Party Congress is that Xi Jinping has political primacy for the foreseeable future. But what does Xi want to do with all his power? In this piece, Andrew summarizes three of the more concrete policy trends Xi signaled at the Congress. Behind all three is a drive to strengthen the apparatus of the Party-state.

    0
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    Gavekal Dragonomics

    Unmixing The Signals Of The Industrial Cycle

    China’s business cycle indicators are sending mixed signals in 2017: PMI surveys show a steady acceleration, even though housing is cooling, while the official indicator of industrial value-added has been strangely volatile. In this piece, we clear up the confusion, and show that industry is indeed tracking the gradual slowdown in construction.

    1
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    Gavekal Dragonomics

    The Housing Slowdown Stays Contained

    China’s housing downturn is here: September data showed nationwide property sales declining for the first time since 2015. But the government’s attempt to cool sales and prices while limiting the impact on the real economy is working. While growth will certainly slow further, this manageable slowdown will not require policy to loosen anytime soon.

    0
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    Gavekal Research

    The New Era Of Chinese Socialism

    In his first term, Xi Jinping has been nothing if not ambitious. So it is not surprising that, in a speech to mark the start of his second term, he announced a series of ambitious goals. It is more surprising that, in Xi’s “new era” of Chinese socialism, the pursuit of national greatness will no longer be centered around economic growth.

    2
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    Gavekal Research

    Experiences, Not Things

    It is a core Gavekal belief that good money management is more about “avoiding losers” than “picking winners”. Yet sell-side research focuses almost entirely on identifying winners. This leaves an avenue for a small, independent firm like ours to lean the other way and help clients identify “losers”.

    27
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    Gavekal Research

    The Savings Glut’s Long Life And Slow Death

    Slow-moving demographic trends have a big impact on asset prices. For the last 35 years, the age structure of the world’s population has created a global savings glut which has propelled secular bull markets in both equities and bonds. Now that demographic tailwind is fading. In a few years it is likely to reverse. In this paper Will introduces a new measure, the Capital Providers Ratio, which relates the impending demographic shifts to the...

    22
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    Gavekal Dragonomics

    The Good Kind Of Capital Outflow

    China’s government has been gradually restricting the ability of households and companies to move money out of the country, with one big exception: outbound portfolio investment is actually getting more support not less. As the Connect schemes with Hong Kong ease worries about capital flight, they have become the preferred channel for outflows.

    1
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    Gavekal Research

    A Post-Reform China

    The 19th Congress of the Chinese Communist Party will decide whether Xi Jinping emerges as the head of a more “presidential” system of government, or whether the current collective system holds sway. Either way, Arthur argues that hopes for a new burst of reform in the Congress’s aftermath are probably mistaken.

    0
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    Gavekal Dragonomics

    A Restrained Boom In Land Sales

    Even as China’s housing market has cooled, the market for land has been heating up. Land sales to developers are up 10% so far in 2017, after declining for the past three years, and prices are up 50-100%. In this piece, Rosealea argues that such signs of froth are deceptive: land sales are still historically low and developers quite conservative.

    0
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    Gavekal Dragonomics

    The Expanding Universe Of Private Companies

    In 2017, China is on track to host a record-setting number of IPOs, mostly by private firms. Big state firms may still dominate stock market indexes, but they are no longer the only option for investors. The number of Chinese private firms large and liquid enough to be of interest to investors is ten times larger than it was just five years ago.

    1
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    Gavekal Dragonomics

    Southwest Rising

    For almost two decades, China’s government has been pouring investment into its inland provinces. Tom Miller visits the southwest and finds the results have been striking: major cities have modernized and incomes are up substantially. Better infrastructure and industrial relocation are now arguably driving a self-sustaining regional growth story.

    0
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    Gavekal Dragonomics

    Macro Update: Prolonging The Peak

    In our latest quarterly chartbook, Chen Long reviews the mixed signals from China’s economy and markets. While the cycle has peaked, the government has still found ways to prolong industrial reflation. But economic growth and bond yields will head down from here, though gradually, as the tightening of financial regulation has been well managed.

    0
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    Gavekal Dragonomics

    The Bottom Line On North Korea

    Even as the US and North Korea exchange more threats, actual US policy still focuses on getting China to apply economic pressure. Yanmei argues that while China has gradually cut trade ties with the North, it wants the regime to stay in place. This is China’s bottom line, not because of any friendship but because China’s own interests demand it.

    10
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    Gavekal Dragonomics

    Online Retail Is Maturing

    The red-hot growth of online retailing in China has cooled in recent years, but it heated up again in the first half of 2017. Ernan argues this is likely a blip, as the fundamentals show online retail is an increasingly mature market. Leading firms are now focusing on the convergence of offline and online retail as the next big opportunity.

    0
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    Gavekal Research

    EM Can Handle Fed Fallout

    Yesterday, the “world’s central bank” confirmed that it will reverse its quantitative easing policy and likely raise interest rates in December and then three times in 2018. On the same day, the benchmark emerging market index nudged higher and is only a whisker off a six year high. Ordinarily, Federal Reserve tightening is terrible news for EMs, especially for those economies with the temerity to simultaneously try policy easing. Yet this is...

    0
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    Gavekal Research

    Reviewing My Calls

    Over the years my research has focused on broad concepts which have been applied in many situations and lots of reports. These include ideas such as the disruptive power of platform companies, assets whose value comes from scarcity rather than efficiency, or the effect of firms running on Schumpeterian, Malthusian or Ricardian principles. Once in a while, however, I do get specific and make investment calls. Having had a little time this week, I...

    6
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    Gavekal Dragonomics

    Capacity Cuts Won't Hold Up Metals Prices

    To reduce air pollution, China says it will run northern steel mills at just half their capacity this coming winter. Prices of steel and other metals initially rallied on the news, but now are coming off. In this piece, Rosealea argues that metals prices have seen the top of their range, and explains why capacity cuts won’t push prices higher.

    0
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    Gavekal Dragonomics

    High Financial Anxiety

    China’s financial system has its troubles, but a large-scale crisis is unlikely. Localized problems among poorly run, small-scale city and rural banks are the bigger risk.

    0
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    Gavekal Dragonomics

    Your Guide To The Maze

    China’s financial system has grown almost five-fold and seen a proliferation of players and products over the past decade. We try to impose order on chaos and explain how the system works.

    0
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    Gavekal Dragonomics

    A Short History Of Financial Deregulation

    Financial deregulation has seen a cartel of national state-owned banks give way to a bewildering array of local banks, non-bank lenders, wealth management products and loans disguised as investments. Regulators are tightening their grip, yet so long as Beijing demands high-speed growth, it will have to tolerate some financial misbehavior.

    0
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    Gavekal Dragonomics

    China’s Banks Are Better Than You Think

    China’s banks get a bad rap. But actually they are pretty well run, especially if one understands their twin roles as commercial actors and tools of state development policy.

    0
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    Gavekal Dragonomics

    Beijing’s Bid To Make US Rail Great Again

    CRRC is winning contract after contract in the US light rail market, slowly squeezing out traditional competitors. Its secret? The promise of direct investment and job creation.

    0
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    Gavekal Dragonomics

    Hollywood Hoo-ha

    Chinese investors have developed a taste for Hollywood, but their buying spree has drawn more scrutiny than tangible benefits. With their wings clipped by new foreign investment rules, their focus will turn back to their home market.

    0
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    Gavekal Dragonomics

    Finally, China Learns To Kick Ass

    When future historians seek to mark the moment when China celebrated its arrival as a world power, they may well point to its newly crowned highest-grossing movie, Wolf Warrior 2. The film is repudiates every sick-man-of-Asia slight China has suffered since the Opium War, and tells the world: those days are over; China is powerful; get used to it.

    0
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    Gavekal Dragonomics

    Rebooting China Inc.

    Beijing is tightening controls on cross-border deals. The good old days of unhindered and lavish outward investment are over. Strategic ODI is back in fashion, with China’s SOEs at the helm.

    0
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    Gavekal Dragonomics

    Dealing The Right Kind Of Opium

    Xi Jinping’s embrace of traditional Chinese religions is a highly political move to build up popular support. But his hostility to Christianity, Islam and Tibetan Buddhism could cost him dearly in terms of social stability.

    0
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    Gavekal Dragonomics

    Three Sets Of Books

    China’s financial system has grown dizzyingly complex, but at its heart sit the banks, which provide most of the funds for shadow lending by non-banks. To assess the system’s risks, we need to understand the banks’ three credit books: their loans, their “investments” routed through non-banks, and their off-balance-sheet wealth management products.

    0
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    Gavekal Dragonomics

    CEQ: The Financial Labyrinth

    Is China’s financial system going to collapse? The speed of credit growth, the proliferation of financial institutions and financial products, and the chaotic and fragmentary data all make it reasonable to fret that China is on the verge of catastrophe. This issue of the CEQ is our attempt to bring clarity to this mystifying landscape.

    0
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    Gavekal Dragonomics

    Straight On Through The Party Congress

    China’s economic data for August confirmed that growth has stepped down a bit in the third quarter. The long-anticipated slowdown is for real, but is also still quite gradual. Andrew argues that policymakers will be comfortable with this situation, and that we should not expect a big change of direction after the Party Congress in October.

    0
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    Gavekal Research

    Asian Hardware Makers Trump California Engineers

    When Apple launched its new lineup of smartphones a couple of days ago, the loudest cheer may have come not from its new donut ring headquarters in Cupertino, but the factory lands of Taiwan and Korea that house its key component suppliers. Launching a flagship phone whose innards are in short supply represents a subtle shift in power from software engineers in California to hardware makers in Asia.

    4
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    Gavekal Research

    Disasters, Bond Yields And The Dollar

    In the past few weeks the US administration cut a deal with opposition Democrats to keep the government open, increasing the likelihood of a budget deficit expansion, and a string of natural disasters have roiled North America. In turn, these events seem to have triggered a sell-off in the US dollar and a global bond rally. Louis outlines two scenarios for where things could go from here.

    0
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    Gavekal Research

    After The Renminbi Rally

    The last renminbi bears are throwing in the towel: with Chinese corporates unwinding the dollar holdings they have accumulated over the last two years, the renminbi is up strongly. Although the PBOC is for now happy to step back and let appreciation happen, there are still limits to how much it will want the trade-weighted exchange rate to rise.

    2
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    Gavekal Research

    Audio & Transcript — Gavekal Research September Call

    In yesterday’s monthly call Louis Gave presented his view on the global investment outlook for the rest of the year. He argued that the key story so far in 2017 has been the strong performance of Asian equities, which has added a second leg to a bull market led by US technology and consumer stocks. The question is whether this can last.

    0
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    Gavekal Dragonomics

    The New Economy Takes The Baton

    Second-quarter earnings for Chinese listed companies showed heavy industry still enjoying strong profit growth, but the more important trend is the consistent rise in profits in the “new economy.” As industrial reflation gradually cools, Thomas argues, these consumer, healthcare, and technology firms are set to outperform.

    0
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    Gavekal Research

    A New World Order In The Making

    It’s all too easy to laugh at the BRICS group, a motley crew of five developing nations with little in common other than the fact that they’re (mostly) big and not yet rich. The term has been mocked as a “Bloody Ridiculous Investment Concept”. So why do the BRICS themselves take it so seriously?

    0
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    Gavekal Research

    Strategy Monthly: A Two-Legged Equity Bull Market

    For the past several years, the brightest spot in global equity markets has been the US, and in particular tech and consumer stocks. This is changing, and we now have a "two-legged" equity bull market led both by US tech stocks and by a resurgent Asia. In our review of global investment conditions Louis explains why this is so, and argues none of the obvious land mines is likely to go off at any time soon.

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