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E.g., 25-04-2017
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    Gavekal Research

    Asian Plowshares Into Swords

    Japanese Prime Minister Shinzo Abe invested time and prestige in a failed bid to supply Australia with 12 new attack submarines and service them for the next 50 years. It was announced yesterday that the approximate US$38bn contract was scooped by a rival French bidder due to its technical competence, but also after a strong lobbying effort by China which does not want to see a resurgent Japanese defense sector. Canberra’s decision represents a...

    0
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    Gavekal Research

    The End Of Asian Equity Market Underperformance?

    With Asian equities having underperformed their global equivalents by almost 40% since 2011, the past five years have not been much fun for regional investors. Encouragingly, however, just as the panic over a possible China currency crisis and economic implosion reached its apex last summer, Asia’s underperformance seems to have abated. Over the following eight month period or so, Asian equities have held their own with a number posting decent...

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  • Gavekal Research

    NIRP: Machiavellian Design Or A Policy Mistake?

    In order to make money, Starbucks has little choice but to sell coffee. Ford must sell cars if it hopes to stay open. And Lockheed Martin better get orders for bombs, missiles and planes if it is to remain relevant. But banks do not need to make loans (their stated purpose) in order to make payrolls and pay shareholders a dividend, at least at certain points in the cycle. When the yield curve is steep, banks can borrow money cheaply at the...

    3
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    Gavekal Research

    Emerging Markets Reality Check

    Emerging market assets have enjoyed a powerful momentum-driven rally over the last two months. A more dovish stance from the US Federal Reserve, falling yields, acceptance that the US dollar is no longer strengthening, and a pick-up in commodity prices combined to quell the market’s worst fears and persuade investors that emerging markets were not in fact facing Armageddon. More recently last week’s release of relatively upbeat economic data...

    0
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    Gavekal Research

    The Sum Of All Fears

    As “China implosion” and renminbi devaluation fears have faded, risk assets around the world have enjoyed a sustained a rally led by “China sensitive” assets such as commodities, Asian equities and emerging market high-yield debt. In short, all the assets that were priced for a scenario just short of Armageddon. But following this rebound, what next? The most obvious point is that, with the pick-up in fiscal stimulus, the rebound in construction...

    0
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    Gavekal Research

    Worth Buying This Japanese Dip

    Those with an active interest in Asian markets had much to process in early trading with shorts cheered by the hardly surprising news that Iran and Saudi Arabia could not agree on an oil production freeze, while longs could point to China whose 1Q15 GDP report on Friday seemed to confirm that the authorities will do whatever it takes to defend their near-term growth targets. But perhaps the bigger factor unnerving investors has been the fallout...

    0
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    Gavekal Research

    The Bright Spot Amid Japan’s Gloom

    The new narrative about Japan is straightforward: Japanese government bond yields will fall even further, the yen will strengthen, corporate earnings will collapse, stock prices will sink, and Mrs Watanabe will withdraw all her savings from the bank and stash them under her tatami. Over the last couple of months, international investors have positioned themselves accordingly. Yet anything more than a cursory visit to Japan quickly emphasizes...

    0
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    Gavekal Research

    Why India Can Move Faster

    India’s lack of efficient roads and railways lowers productivity, depresses aggregate demand, raises costs and stymies trade—all impediments to economic growth. The good news is that India’s latest infrastructure push, financed initially by public investment, is showing signs of traction. The latest government budget committed a hefty US$32bn to roads, rail and other infrastructure, a big increase within a broader environment of fiscal...

    2
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    Gavekal Research

    The Yen And Japanese Equities

    It is hard not to feel a smidgen of sympathy for Haruhiko Kuroda. In the last 18 months, the Bank of Japan governor has deployed a whole battery of heavy artillery, stepping up his asset purchases to ¥80trn a year, extending them to cover exchange-traded funds and real estate investment trusts, and pushing short term interest rates into negative territory. As well as supporting asset markets, much of this effort was aimed at driving the yen...

    0
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    Gavekal Dragonomics

    CEQ Q1 2016 - Powerhouse, Menace, Or The Next Japan?

    Two popular narratives about China are that it will either reform its economy and become the next superpower, or fall victim to a dramatic financial crisis. There is a third and perhaps more likely scenario: gradual stagnation, along the lines of 1990s Japan.

    0
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    Gavekal Research

    Fade The Emerging Market Rally

    In defiance of conventional wisdom the oil price has tumbled -10% in the last two weeks despite a weak US dollar. For emerging markets investors, the breakdown of this correlation raises tricky questions.

    0
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    Gavekal Dragonomics

    CEQ: Avoiding The Japan Trap

    Growth is slowing, debt is rising, and the government is openly talking about "zombie companies" in key industries. This is China today, but there are also echoes of 1990s Japan. This issue of the CEQ examines the similarities and differences, and handicaps China’s chances of dodging a Japanese scenario of low-growth, high-debt stagnation.

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    Gavekal Research

    The Gavekal Monthly: The Dollar Weakens; Time To Buy Jewels?

    The big change over the last month is that the US dollar is now falling on a year-on-year basis. This weakness reflects a more abundant international supply of dollars as the US trade balance, ex-China and ex-oil, has swung back into the red after six years in surplus. In this edition of The Gavekal Monthly, Louis outlines why, in such a plentiful-dollar environment, investors should consider prioritizing “jewels” over “tools”.

    0
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    Gavekal Research

    The Beef In Japan’s Budget Bowl

    At ¥97trn, the 2016/17 budget passed by the Japanese parliament on Tuesday was the country’s biggest ever, with accelerating spending increases for welfare, pensions, healthcare, and defense. Yet no one expects Tuesday’s budget to be the end of this year’s fiscal story. Greater than expected increases in tax revenues both from corporations and individuals mean the budget’s reliance on funding from Japanese government bond issuance fell to 35.6...

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    Gavekal Research

    Bridging India’s Financing Gap

    India’s shoddy infrastructure is the stuff of legend. Ranked 87th in the World Economic Forum’s infrastructure quality index, much of it would not look out of place in sub-Saharan Africa. Mumbai’s rickety old airport, famous for its frequent delays and scuttling rats, once told visitors everything they needed to know. Yet the city’s sleek and airy new terminal presents a fresh image: five times bigger than the old airport, it is clean, efficient...

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    Gavekal Dragonomics

    No Worries From China's Rebalancing?

    For a country that gained so much from China’s commodity boom, Australia seems quite sanguine about the bust. Mining investment may be falling, but optimism on tourism is rising. So has Australia already switched from the old commodity-driven to the new consumer-driven China? And will this rebalancing also be painless for the rest of the world?

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    Gavekal Research

    Dollar Liquidity And Its Dependents

    One of our long-standing rules of thumb has been that a deteriorating US trade balance is good news for the rest of the world, and especially for emerging markets. It is thus a positive sign that the ex-energy, ex-China trade balance shifted from surplus to a deficit in 2015, sending US$150bn to the world outside of China and the oil exporters. The overall trade balance is likely to continue worsening through late 2017, thanks to the lagged...

    5
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    Gavekal Research

    The Upside In India

    The biggest immediate problem is that corporate India is not investing. Private businesses are over-leveraged and economic demand is weak. Hamstrung by US$130bn of bad loans, India’s state banks aren’t lending. The government has made little headway on the long-running debate over how to clean up their overstretched balance sheets.

    0
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    Gavekal Research

    The Yen And Hard Truths

    The renewed “risk-on” moves of recent weeks has seen a vicious rebound in commodity prices, renewed stability in credit markets and, notably, a decline in the euro, which has fallen back to its early year level against the US dollar. The big outlier in these moves is the Japanese yen, which has become the new strong man of the currency world.

    0
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    Gavekal Research

    Not Yet The Buy Of A Lifetime

    With emerging market equities up 13% over the last three weeks, and outstripping developed markets over the year to date, the notion is gaining traction that after four years of underperformance emerging markets are now “the buy of a lifetime”. Investors should be cautious. While it is indeed possible that emerging markets could continue to rally over the next few months as the US dollar tops out and commodity prices stabilize, the longer term...

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