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E.g., 20-11-2017
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    Gavekal Research

    The Great Policy Convergence

    Yesterday’s announcement that the European Central Bank is preparing to buy government bonds from the first quarter of next year is an event of historic importance. As the logical follow-up to Mario Draghi’s commitment to expand the ECB’s balance sheet by €1trn, yesterday’s statement by ECB vice-president Vitor Constâncio confirms beyond reasonable doubt that Europe is ready, at last, to implement full-blown quantitative easing, over-riding the...

    1
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    Gavekal Research

    Five Corners (26 November): Capital Spending In 2015

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    Gavekal Research

    5C Asia: India’s Investment Boom Is Almost Here

    Against a backdrop of weakening global growth, India stands out as a rare bright spot. Much of the optimism is predicated on hopes of a recovery in the capital spending cycle, especially in infrastructure.

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    Gavekal Research

    Global Central Banks Are Driving Appetite For US Cyclicals

    The rebound in US equities since their mid-October trough has been impressive. After giving up almost all its year to date gains in just four weeks, the S&P 500 snapped back even more quickly, ending October at a new record high. Since then, it has extended its advance to notch up a YTD gain of 12%. Yet, until just a few days ago, the relative performance of sectors within the index indicated a degree of caution on the part of investors....

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    Gavekal Research

    Japan's Election And The Yen

    With Japan in the middle of a triple-dip recession, and Japanese households suffering a significant contraction in real disposable income, it might seem at first that Prime Minister Shinzo Abe has chosen an odd time to call a snap election. But that conclusion would ignore the two iron-clad rules of investing in Japan that we never tire of repeating:

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    Gavekal Research

    What If The Yen Falls Another 20%?

    Japan’s woeful third quarter performance—the economy contracted at an annualized 1.6% rate, pushing the economy into a technical recession—has killed any remaining expectations that the government of Shinzo Abe will proceed with its original plan to raise the country’s sales tax for a second time next year to 10%. In the absence of further fiscal consolidation, this will leave the prime minister’s ‘Abenomics’ policy to revitalize Japan’s economy...

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    Gavekal Research

    Here Comes The Melt-Up

    Back in mid-October as stock markets around the world plunged faster than at any time since 2011, many investors and economists feared a meltdown. But with the US economy steadily expanding, monetary and fiscal policy becoming more stimulative in other parts of the world and the autumn season for financial crises now over, a melt-up seems more likely than a melt-down.

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    Gavekal Japanese

    Japan's Genki Grandparents!

    Aged 94, Susumu Yamamoto thought about a career change, but he didn’t want to rush the decision. Two years later, he is still mulling it over. Meanwhile, his daughters are on his case for doing too much. Recently an argument broke out with his youngest daughter (aged 72). She took the duvet to the cleaners. He said he could have washed it himself. On top of all that, his eldest daughter (76) is nagging him to eat more vegetables. But Yamamoto-...

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    Gavekal Research

    Bank Shares And Deflation Risks

    Over the years, I have learnt the hard way to pay a good deal of attention to the behavior of bank shares. Simply put, when interest rates and bank shares fall in tandem the market is offering a clear signal that very bad news is on the way.

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    Gavekal Research

    Five Corners (12 November): The Commodity Fallout

    Overview: Louis Gave Considers the poor performance of gold mining stocks and wonders if energy companies are set to go the same way.

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    Gavekal Research

    China's Geostrategic Ambition

    Xi Jinping is making good on his promise to restore China’s position on the world stage. On Monday, China agreed to slash tariffs on high-tech imports, breaking almost 18 months of deadlock with the US over how to update the WTO’s Information Technology Agreement. In coming to terms, China showed it is willing to work with the US in support of multilateral trade frameworks. But China’s President Xi also used his chairmanship of this year’s Asia-...

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    Gavekal Japanese

    Japan’s Hydrogen game Changer

    Japan is often described as lacking domestic energy sources, but this is not quite fair. In addition to geothermic energy galore (108 volcanoes) it has untapped natural gas encased in sheets of ‘fire ice’ buried beneath the sea bed. Japan has spent years working on test production sites with the aim of moving to mass production. Such a commercial operation looks increasingly tenable in what could be an energy game-changer for Japan, just as...

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    Gavekal Research

    5C Asia: Soft Commodity Prices Provide A Profit Cushion

    Are weak commodity prices good or bad news for Asia? Most Asian countries are net commodity importers, so common sense dictates that they will benefit from lower input costs. What’s more, just as rising prices represented a transfer of wealth towards commodity producers, so weaker prices will support consumer demand by lifting real incomes.

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    Gavekal Japanese

    When Beta Fades

    A week ago Haruhiko Kuroda surprised the market with a new and aggressive quantitative easing plan. In response most brokers surprised absolutely no-one with calls to ‘buy exporters, buy banks and buy real estate plays’. Of course, such trades might work for the macro tourists looking to give their capital a two-week sightseeing trip in Tokyo. Which brings to mind Charlie Munger’s words of wisdom of: ‘show me the incentives and I will show you...

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    Gavekal Research

    The Two Things That Matter In India

    Indian equities yesterday registered a new peak even as emerging markets remain almost 10% off their early September high. Resurgent optimism toward India’s prospects has been ramped up by a belief that Prime Minister Narendra Modi can return the economy to its high growth path of the mid-2000s. Udith is not convinced of this simple story line, but his contention is that global investors do not need to fret over each twist and turn in India’s...

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    Gavekal Research

    Growth & Markets Monthly (November 2014)

    In this edition of our monthly report we note that economic activity continues to register weaker momentum while deflationary pressures remain stubbornly present. On the primary liquidity side, the Fed has ended its quantitative easing program, while the Bank of Japan has committed to a more aggressive policy, which may yet inspire the European Central Bank into similar action. Private sector credit multiplication, or the velocity of money, has...

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    Gavekal Research

    Japan Is More Than Just A Macro Trade

    The market’s reaction shows that most investors were taken by surprise by Friday’s announcement from the Bank of Japan. They should not have been. BoJ governor Haruhiko Kuroda has declared time and again that he watches growth numbers closely, and would act on any signs of a deterioration. Those signs were officially acknowledged on Friday when the central bank published its three-year growth forecasts, halving the outlook for this year.

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    Gavekal Research

    The True Meaning Of The September October Sell-Off

    The World MSCI stands marginally higher than its position on August 1st. So someone who went on holiday for three months might conclude that not much has happened. Yet, in doing so, our Frenchman (for who else takes three month holidays?) would have overlooked an important question that is highly relevant to the here and now. Specifically, why did markets unravel so aggressively in a six week period from early September to mid-October? To this...

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    Gavekal Research

    London Seminar October 2014 - Anatole, Francois, Tom, Will & Charles

    We held our autumn seminar in London on October 28 with Anatole, Francois, Tom, Will and Charles offering their take on the state of the world economy and the outlook for financial markets.

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    Gavekal Research

    In Japan The Era Of QE Continues

    Just two days after the US Federal Reserve ended its program of quantitative easing, and with the world still waiting to see if the European Central Bank will ever launch effective action, the Bank of Japan stepped up to the plate, stunning markets by announcing a major expansion of its own balance sheet. The acceleration of the BoJ’s “quantitative and qualitative easing” will markedly widen the divergence of monetary policy between Japan and...

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    Gavekal Research

    Five Corners (October 29): The Fiscal Imperative

    Overview: Anatole Kaletsky explains why monetary policy has become an effective irrelevance and fiscal policy is really the only game in town.

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    Gavekal Research

    5C Asia: Japan's Fiscal Debate

    Japan’s fiscal policy has been the exception among developed economies this year. While others sought to avoid austerity, Japan hiked its sales tax rate from 5% to 8% in April, sending the economy into contraction. The weaker-than-expected recovery from this slump has prompted a series of growth downgrades, with the International Monetary Fund cutting Japan’s forecast growth rate for 2014 in half to just 0.9% and predicting a 25% chance of...

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    Gavekal Research

    Travels Along The New Silk Road: The Economics Of Power

    China’s economic expansion overseas is one of the defining geopolitical shifts of our time. Chinese firms have already invested in excess of US$500bn abroad, and the annual flow of overseas investment is set to overtake the flow of foreign direct investment this year (see More Deals, More Players). The push into Africa has captured most attention, but China’s economic tentacles are spreading across developing Asia, too—not least in Central Asia...

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    Gavekal Research

    Buying The Dip? Choose Asia

    Markets remain jittery, but the last week has at least seen a break in the downward momentum. Hence it may be worth taking stock of relative performance by the big regions. Looking across the MSCI benchmarks, the All Country World index is down –4.7% since its peak in early September, while the US, Eurozone, Emerging Markets (ex-Asia) and Emerging Asia declined respectively by –3.9%, -5.2%, -8.4% and –5.4%.

    0
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    Gavekal Research

    Waiting For The Japanese Pay-Off

    Back in December 2012, as it became clear Japan was moving towards an all-out attack on deflation, I argued that if Tokyo’s shock and awe campaign drove the yen into undervalued territory, it would have a powerful deflationary impact on the rest of the world. My view at the time was that the devaluation of the Japanese currency would reintroduce a formidable competitor into the world’s economic system, and that it would take roughly 18 months...

    1
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    Gavekal Research

    Blood And Bazaars On The New Silk Road

    After more than three decades of passive foreign policy, China has a strong leader unafraid of articulating a vision of expansionism. Like Vladimir Putin, Xi Jinping wants to re-establish his country’s historical sphere of influence—but Xi’s vision is based on economic logic rather than political machismo. Across Asia, China is using its enormous domestic market, financial power and prowess in building infrastructure to suck its neighbors into...

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    Gavekal Research

    Give Last Week Back To The Indians

    4
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    Gavekal Research

    Torschlusspanik!

    The Germans, it is said, have a word for everything—and their word for what we saw in European and US markets on Wednesday and in Asia on Thursday morning is Torschlusspanik. Literally ‘gate-shut-panic’, this describes the nasty crush that develops when everyone rushes at once for an exit that is fast closing; inevitably someone gets injured.

    1
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    Gavekal Research

    Five Corners (October 15): The Equity Rout

    Overview: François Chauchat asks whether a US recovery is enough to drive global equity markets or has the world changed.

    0
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    Gavekal Research

    An Exemplary Emerging Market

    The combination of a strong US dollar and weak commodity prices would usually spell misery for emerging markets. Yet the benchmark for this group has lost only 4.5% since the dollar started rising in July, compared to a 15% fall in the month that followed Ben Bernanke saying “taper” last May. To be sure, the EM benchmark is down as much as 6% in the last month, but it's worth noting that the main eurozone equity index has shed 10% in the...

    0
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    Gavekal Research

    Behind The Equity Market Meltdown

    Why are stock markets around the world falling? The surest explanation is one that works whenever the markets move in a big way: there are more sellers than buyers after a long period without a meaningful correction (it is three years since the 20% decline that ended in October 2011). A more sophisticated account of the correction might point to the collapse of oil prices and its impact on natural resource shares. While falling oil prices are...

    3
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    Gavekal Research

    Normal Or Systemic Markets?

    In The Crucible Arthur Miller wrote “until an hour before the Devil fell, God thought him beautiful in Heaven”. Granted, equity markets have not exactly suffered Lucifer-like de-ratings lately. Nonetheless, the price action in stock markets around the world is looking less and less healthy by the day. Let me explain: when examining the performance of a given index over a very long period of time, one typically finds that, like most things in...

    3
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    Gavekal Research

    If You Keep On Doing What You’ve Always Done...

    ...you'll keep on getting what you’ve always got. At least, that's what any sports coach worth his salt would tell a losing team in the half-time huddle. And perhaps this is the problem facing the big developed economies. Not enough of today's bien-pensants (Hollande, Merkel, Yellen, Bernanke...) or their advisers (Summers, Piketty, Krugman...) have spent time chasing a ball around a field. Let me explain.

    2
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    Gavekal Research

    Seek refuge In The US

    Markets have suffered a significant risk-off move in the last month. US equities have fallen as much as –3.8%; European stocks are down -6% in euro terms and –8% in US dollar terms, and government bonds have been bid up while credit spreads have widened. Readers are surely wondering what to do now: Buy the dip, or sell everything before this turns into a full-on bear market? Hold steady, or adjust portfolios? To answer these questions, we have...

    6
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    Gavekal Research

    5C Overview: Waiting For The Regional Rotation

    After years of doubt about the efficacy of US economic policies, the revival of confidence in America stands out as one of the key developments of 2014. This turnaround has been attested by the recovery of capital investment, by the resilience of the US economy to the Federal Reserve’s tapering process, and more recently by the strength of the US dollar.

    0
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    Gavekal Research

    5C Asia: Finding Real Growth In Emerging Markets

    US dollar strength and weakening commodity prices have knocked the wind out of global equities in recent weeks, and EMs have not been immune. Intuitively, the emerging market experiencing relatively larger losses could be broadly classified into three somewhat inter-related buckets: (i) markets where idiosyncratic factors add to geopolitical risk premiums (e.g., Russia, Argentina, etc.); (ii) markets facing a loss of growth momentum as the China...

    0
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    Gavekal Research

    Growth & Markets Monthly (October 2014)

    This month produced another visible deterioration in our growth indicators. A large part of this downshift stems from Europe which remains the major economic region of particular concern. On the risk side, most of our indicators weakened slightly; interestingly our own proprietary velocity indicator was the lone positive outlier. On the asset allocation side, equities generally hover around fairly valued, while bonds look expensive. However,...

    0
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    Gavekal Research

    Five Corners (1 October): The Energy Selloff

    Overview: Louis looks at the decline in oil prices and wonders whether the genesis can be found back in May when the leaders of China and Russia met for an historic summit.

    0
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    Gavekal Research

    Japan: Where Bad News Is Good

    At first glance recent data flows from Japan appear deeply at odds with the market action. Factory output, consumer spending and real wages all fell in August, while Japan’s economic surprise index has spent most of the last month deep in negative territory, an exceptional occurrence, even when viewed through the lens of Japan’s recent lost decade. Yet in a dismal third quarter for global equity markets, Japanese stocks stood out for their...

    3
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    Gavekal Research

    India’s Muddled Mission Statement

    The public relations machine of Narendra Modi, a one-time pariah in respectable political circles, is currently in overdrive. India’s charismatic prime minister grabbed the plaudits for India’s low cost Mars orbiter pipping China to the Red Planet last week, and in recent days he’s been getting the full blown celebrity treatment during an official visit to the US, something which is rare for a foreign leader. In between these triumphs of...

    0
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    Gavekal Research

    An Irish Outlier?

    The Irish economy looks to be making a faster than expected recovery from its grim 2010 nadir. Growth is running at an annualized 6.5% which is more reminiscent of the “Celtic tiger” era than the grinding recession conditions still typical in Southern Europe. Ireland seems sure to emerge as a paradigmatic case study between the rival policymaking camps of so called Austerians and those advocating more conventional Keynesian responses. But for...

    4
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    Gavekal Research

    5C Asia: It Pays To Restart

    Japan has a clear economic interest in restarting its nuclear power program since the high cost of replacing its cheapest source of power has had a direct negative impact on the government’s hoped for reflation—most of the price rises generated in the last two years have come not from improving domestic demand, but higher power bills. And now that Japan has learned to live without nuclear power (and accept the costs) policymakers must be...

    0
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    Gavekal Research

    Asia Can Handle A Strong Dollar

    Can emerging markets handle a strong US dollar? This is a crucial question for investors in emerging Asia since an appreciating dollar has often spelt trouble for the region’s markets. The worry is that the dollar now looks to be on a secular strengthening trend with the DXY up 6% since July 1. For its part, the MSCI Asia ex-Japan index has lost 3% in less than two weeks.

    2
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    Gavekal Research

    Can Working Women Revitalize Japan?

    In his reshuffle earlier this month, prime minister Shinzo Abe appointed five women to Japan’s cabinet. By more than doubling the number of senior ministerial posts held by women, Abe was hoping to lend some extra impetus to the ‘third arrow’ of his ‘Abenomics’ program to revitalize Japan’s economy. The first two arrows—fiscal and monetary stimuli—have succeeded in weakening the yen to a six year low against the US dollar, returning Japan to...

    1
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    Gavekal Research

    Five Corners (17 September): World Bond Markets

    In our latest bi-weekly review of global economics, we take a searching look at the state of global bond markets. As the US Federal Reserve inches closer to a tightening bias, bond investors must climb a wall of fear. Recent weeks have seen yields rise globally. The issue is whether this represents a nervous short-term move or a bigger shift in the cycle. Gavekal Dragonomics analysts consider the picture from the major economic regions.

    0
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    Gavekal Research

    Japanese Equities' Surprise Potential

    After spending most of this year range-trading against the US dollar, the Japanese yen has moved decisively lower since July. Yet—unlike the last time the yen broke out in 1H13—equity investors have mostly yawned. Despite a mild pick-up in economic growth and inflation since it took office in late 2012, Shinzo Abe’s government has failed to deliver meaningful structural reform. As a result, equity investors have been left trying to game the...

    1
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    Gavekal Research

    5C Overview: Weatherproofing Bond Portfolios

    For much of this year bond investors have been in ‘risk-on’ mode. When in April the European Central Bank first hinted it was preparing to embark on its own unconventional easing measures, investors concluded that with all the world’s major central banks now offering a put on growth, it was safe to head out in search of extra yield. Global bond markets duly rallied across the board, with volatility falling to near-record lows.

    0
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    Gavekal Research

    5C Asia: Whether To Bet On A Permanent BoJ Bid

    We do not like Japanese government bonds. In our view their return on capital is simply too low to justify an allocation. Local players, however, disagree.

    0
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    Gavekal Dragonomics

    Korea Thriving In China's Chilly Investment Climate

    Many multinational companies are under pressure in China, facing a slowing economy and slowing sales, as well as increased regulatory scrutiny. This is beginning to show up in business plans: annual surveys of American and European businesses by their Beijing-based chambers of commerce show that while China still ranks as a top-three global investment priority, more and more companies are scaling back their expansion plans. For Japanese...

    0
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    Gavekal Research

    Asia’s New Credit Cycle

    The US dollar’s renewed strength has seen most major currencies swoon before it in recent weeks. A notable exception has been the emerging Asia basket which has seen declines of less than 1% against the dollar compared to falls of up to 5% for the euro, yen and sterling. We don’t think this is a case of emerging Asia being the next shoe to drop. Instead, under-owned Asian markets look to be in an early phase of a new credit cycle following the...

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