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    Gavekal Research

    Two Cheers For India

    The end of China’s investment boom means the global economy is seeking a new driver of growth. India’s economy outpaced China’s last year, making it the world’s fastest-growing large economy. Tom and Udith analyze what India must do to fulfill its potential

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    Gavekal Research

    Having Your Cake, And Eating It

    Is the world really facing a 2008-style economic and market meltdown all over again? If it is, then the prescription for investors is clear: load up on long-dated US treasuries in expectation of a continued slide in yields, leaven your portfolio with exposure to gold, and prepare for the apocalypse. But what if the end of days is not imminent? In that case, investors face a trickier call.

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  • Gavekal Research

    Crisis? What Crisis?

    Two weeks ago I published an article dissenting from the near-universal view among my Gavekal colleagues, and also probably among our clients, that the global equity markets had entered a severe bear market (see Is Wall Street In A “Bear Market”?). Since I expressed this relatively optimistic view on January 27, the S&P 500 has fallen another -2.7%, the world MSCI-ex US by -3% and the Nikkei by a whopping -8.5% in yen terms. It may therefore...

    4
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    Gavekal Research

    India’s Cleanup

    The last year has been both the best of times and the worst of times for the world’s fastest growing emerging market. India has gotten inflation under control and reaped a nice dividend from the oil price collapse, resulting in a much improved external position. The pro-growth majority government of Narendra Modi has not delivered “big bang” reforms, but has been generally competent and cut red tape. All of this marks India out as a “survivor”...

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    Gavekal Research

    QSCB: How To Adapt To A Slow-Growth Future

    Growth in the world’s two biggest economies is settling at much lower rates than investors are used to. We predictably struggle to find a neat consensus on what the current macro environment means for asset allocators, but Charles, Louis and Anatole all offer specific portfolio advice.

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    Gavekal Research

    No More Shock Absorbers?

    Things have come to a pretty pass when the heads of two of the world’s three leading central banks come out with all guns blazing in an attempt to persuade markets that they will do whatever it takes and more to ease policy—and their currencies promptly strengthen by two big figures. Yet that is exactly what has happened this week. On Monday Mario Draghi dropped a heavy hint that the European Central Bank is preparing to push interest rates even...

    2
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    Gavekal Research

    Why Is Yen Weakness ‘Good’ But Renminbi Weakness ‘Bad’?

    When the yen falls, global markets think it is A Good Thing, and risk appetite increases. But market moves early in January demonstrated that the opposite applies to China: when the renminbi falls, markets think that is A Bad Thing, and risk appetite vanishes. So why do investors like a weak yen but fear a weak renminbi?

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  • Gavekal Research

    Red Herrings, Margin Calls And Heart Attacks

    Most recent commentary we have read suggests that January’s turmoil can be blamed on either the slowdown in China or the fear of an impending US recession. But let us suggest an alternative: these are red herrings which only distract from the real analytical challenges faced by investors.

    4
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    Gavekal Research

    The Gavekal Monthly: Enter Ursus Magnus?

    January was a hair raising month for investors with a deeply worrying combination of falling oil prices, plunging equities and soaring yields for sub investment grade debt. In this edition of the Gavekal Monthly we seek some answers to the “what next” question, kicking off with Charles and Anatole who take very different views on whether a bear market is upon us.

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    Gavekal Research

    The Bank Of Japan Surprises

    The Bank of Japan just got all European in its battle against deflationary forces by adopting a negative interest rate policy. By changing its main interest rate for the first time in five years the BoJ genuinely surprised the market; some form of easing was expected given the recent strength in the yen and growth worries, but only a week ago Governor Haruhiko Kuroda ruled out the negative rate option.

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    Gavekal Research

    Anatomy Of The Bear

    I wish I shared Anatole’s degree of conviction. In yesterday’s Daily he set out his belief that the current sell-off in financial markets is not the start of “a structural ‘bear market’, still less a structural Ursus Magnus likely to last for many years” (see Is Wall Street In A ‘Bear Market’). I am not so sure. I suspect that what we are witnessing may indeed be the emergence of an Ursus Magnus, the sort of bear market so deep and prolonged...

    2
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    Gavekal Research

    Don’t Buy The BoJ Bluster

    Haruhiko Kuroda, the Bank of Japan Governor, has presided over a pick-up in domestic demand and seems loath to have it extinguished by a global growth scare. Last week he hinted that he was ready to do more, and subsequent press leaks point to a further expansion of his quantitative easing program. One reason to think a big bazooka may be rolled out at Thursday’s policy-setting meeting is that a month ago the BoJ mildly expanded its QE operation...

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    Gavekal Research

    Looking For The Bright Side

    By most measures, the first two weeks of 2016 have been the worst-ever start of the year for risk assets. With the MSCI All-Countries index down nearly -20% from last May’s high, we are now in a global bear market.

    1
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    Gavekal Research

    Is Japan’s Building Boom For Real?

    As followers of our specialist Gavekal Japan Alpha service will know, something of a construction boom is emerging in Japan. At first glance this seems surprising, especially given that Japan is pedaling into some severe demographic headwinds. According to the 2010 national census, Japan’s population did grow between 2005 and 2010—but only by 0.2% over the five-year period, to reach 128mn. Over the coming decades, that anemic demographic growth...

    0
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    Gavekal Research

    Going Down With The Renminbi

    Emerging markets have faced significant headwinds ever since the “taper tantrum” of mid-2013 when investors began to factor in tightening moves by the Federal Reserve. Their headache got much worse last summer when China allowed a mini-devaluation of the renminbi, and 2016 is hardly starting well. The root problem is that most emerging markets are over-geared and need to ease policy if growth is to be kick-started. Unfortunately, easing is...

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    Gavekal Research

    The Gavekal Monthly: The Balance Of Risks

    The new year has been a wild ride so far, with sharp drops in the renminbi, Chinese stock markets, and oil prices leading global markets down. In our first Gavekal Monthly of 2016 we try to make sense of the risks facing investors today. As usual there are some strong differences of opinion: Anatole argues that developed economies are in decent shape, the dollar's rise will soon be over, and equities should post a better performance than...

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    Gavekal Research

    ASEAN Could Yet Matter

    Until the Asian Financial Crisis of the late 1990s, Southeast Asia’s export-led development was driven by ethnically-Chinese entrepreneurs who ran dispersed production that mostly supplied the garment, electronics and consumer goods sectors. By the mid-2000s these relationships had greatly simplified, with the economies of the Association of South East Asian Nations either slotting into the Chinese manufacturing supply chain, or alternatively...

    0
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    Gavekal Research

    Forget About Oil And China, Look To The US In 2016

    On the whole, 2015 was a year for investors to forget. US bond and equity prices were both flat, equity gains in Europe were mostly wiped out (for US dollar investors) by the fall of the euro, and commodity plays and high-yield issues crumbled. China sparked a brief panic after a clumsy intervention to cushion a stock-market collapse and an unexpected currency devaluation, but by the end of the year the Shanghai index was still up nearly 5% in...

    0
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    Gavekal Research

    The Clash Over Fossil Fuels

    Over the weekend in Paris, the leaders of 195 nations announced a landmark deal to address climate change that its more optimistic supporters say heralds “the end of the fossil fuel era.” But both market action and many government policies point in the opposite direction. Crude oil prices continue to tumble towards the US$30 mark, and coal prices have also collapsed—both moves that reflect abundant global supplies of fossil fuels. The Paris...

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    Gavekal Research

    The Cure For Low Prices Is Low Prices

    What is the latest rout in commodity prices telling us? Certainly, China’s demand for many commodities is weak—but everyone knows this. The most important signal is rather on the supply side: low prices are finally pushing commodity producers to cut output. It is this restructuring that will eventually bring stability to commodity prices.

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