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E.g., 23-06-2017
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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...

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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.

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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”.

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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...

    2
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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.

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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...

    2
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    Gavekal Research

    The Avoidance Of Debt Traps

    Yesterday saw Asia’s two big emerging economies adjust economic settings to deal with their respective debt problems. China cut the required reserve ratio that banks must hold by 50bp and India’s government rolled out a cautious budget. Both countries' actions, while different in nature, reflect sensible responses to testing circumstances.

    0
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    Gavekal Research

    The Gavekal Monthly: Nothing To Fear But Fear Itself

    February saw some stability return to markets as investors got more comfortable with China’s currency policy and became less convinced that the Federal Reserve made a fatal mistake in December by raising interest rates. In this edition of the Gavekal Monthly Anatole assesses the big worries for global investors, while other writers focus on the burning currency questions in the major economic regions.

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    Gavekal Research

    Video: On India's Growth

    0
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    Gavekal Research

    No More Curve To Roll Down

    Since the Bank of Japan introduced a negative deposit rate on January 30, Japanese bank shares have collapsed, falling -21% in yen terms and -15% in US dollars. The first question to ask is this: why were Japanese bank shares derated so dramatically after the policy change? Here are a few explanations, which are not mutually exclusive:

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    Gavekal Research

    More Power To India

    India’s economic expansion is being retarded by an impaired banking system whose non-performing loan ratio, depending on your methodology, is as high as 12%. The biggest contributor to this bad debt mound is the country’s power sector which accounts for about 10% of bank credit (INR6trn) and 20% of “stressed” loans. The irony is that fast growing India—which currently uses about 1010kWh of power per head versus a global average of about 3000kWh—...

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    Gavekal Research

    Japan’s Point Of No Return

    On January 29 the BoJ destabilized Japan's market equilibrium with a poorly communicated shift to negative interest rates. The message received by the market was that Governor Haruhiko Kuroda was making a desperate gamble with the suggestion that the BoJ’s quantitative-easing strategy had run up against key limits.

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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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