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E.g., 26-03-2017
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    Gavekal Research

    The Birth Of A Pain Trade?

    The question we have received most in recent days is whether this week’s counter-trend rally in commodities, deep cyclicals and emerging markets can morph into a “melt-up” akin to that seen in 4Q98. Seventeen years ago the blowback from the Asian Financial Crisis culminated in late September with the failure of Long Term Capital Management. Within days of a hurriedly agreed creditor bailout, the Federal Reserve had made the first of three...

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    Gavekal Research

    The Big Winner From The TPP

    After a tough summer with little to cheer about, investors finally got some good news yesterday. After five years of negotiations, culminating in six days of round-the-clock talks in Atlanta, the US, Japan and 10 other Pacific Rim economies finally struck a deal on the Trans-Pacific Partnership. If ratified by the signatories’ parliaments, the TPP will be the biggest liberalization of global trade since China’s entry into the WTO, and the...

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    Gavekal Research

    Asia's Good For A Bounce

    Financial markets offer a real-time snapshot of how humans, and increasingly computer programs react to new information. When they collectively engage in a fit of irrationality the opportunity arises to extract profits. With Hong Kong equities rallying hard in this morning’s session, it seems that enough investors reckon such a moment has arrived in Asia.

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    Gavekal Research

    The Gavekal Monthly: More Questions Than Answers

    With the Fed having put its rate hike decision on hold, investors face an uncertain environment of weak global growth and inflation, tottering emerging markets and continued worries about China. In this edition of The Gavekal Monthly, Louis-Vincent Gave surveys the crucial questions investors must grapple with and identifies the indicators to monitor in the coming weeks. In addition, we highlight three calls from our analyst team: Joyce...

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    Gavekal Research

    India’s Still Fertile Forest

    Earlier this week India cut interest rates by 50bp, making it one of the few emerging economies to do so in the face of an investor panic that has hit the asset class hard. The central bank’s actions contrast sharply with the 2013 “taper tantrum” when it was forced to ramp up rates to rein in inflation and prevent capital flight. The action shows that India has a fundamentally better macro-economic positioning than its EM peers, and in our view...

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    Gavekal Research

    QSCB: What Is The Trade Slowdown Telling Us?

    For the first time since the 1970s global trade is growing more slowly than global GDP, and if anything this growth is decelerating. One explanation is that slower world trade is a symptom of weak global demand, and perhaps a harbinger of worse economic news to come. That is possible, but in this Quarterly Strategy Chartbook we argue that the trade slowdown reflects structural changes in the world economy, and signals that a new phase of...

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    Gavekal Research

    A Worrying Set Of Signals

    Regular readers will know that we keep a battery of indicators to gauge, among other things, economic activity, inflationary pressure, risk appetite and asset valuations. Most of the time this dashboard offers mixed messages, which is not hugely helpful to the investment process. Yet from time to time, the data pack points unambiguously in a single direction and experience tells us that such confluences are worth watching. We are today at such a...

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    Gavekal Research

    Has Abenomics Failed?

    Has Abenomics failed? On paper, the answer is an unequivocal “yes”. Almost three years after the election of Prime Minister Shinzo Abe, the “three arrows” of his economic revitalization program—stimulative fiscal policy, massive central bank monetary expansion, and far-reaching structural reforms—have missed all their declared targets. Far from accelerating to a trend growth rate of 2%, Japan’s economy has faltered, contracting at an annualized...

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    Gavekal Research

    How Much Does China Really Matter?

    How much does China’s slowdown really matter to the rest of the world? At first this might sound like a silly question. After all, China is home to a fifth of humanity, it is the world’s second largest national economy and its second largest importer, and in recent years has contributed between a quarter and a third of global growth. What’s more, the recent volatility in China’s stock markets and exchange rate caused shockwaves around the world...

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    Gavekal Research

    Is The China Panic Abating?

    For the past six weeks, global markets have been in a China-centric panic, sparked partly by bad economic data, but mostly by policy bungling from China’s policymakers. Having spurred a huge expansion in equity margin debt, regulators turned tail in June and cracked down on the practice. As an equity market crash unfolded, policymakers took to swinging a big stick: price-keeping operations were tried, stock trading was halted and speculators...

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    Gavekal Research

    Why Malaysia’s Falling Knife Is Worth Catching

    The downgrade of Brazil’s debt last week to junk status has renewed fears that emerging markets may face another vicious sell-off. To date EM angst has mostly focused on resource exporters made fragile by the China-induced commodity bust. But the prospect of an imminent US interest rate hike has focused attention more generally on markets with heavy foreign currency debt exposure. Malaysia looks to face the worst of all worlds as its external...

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    Gavekal Research

    Deleveraging In The Emerging World

    There has been a lot of talk in recent weeks about the collapse in emerging market currencies, with extravagant comparisons to the 1997-98 crisis. In reality, however, there is no “crisis”. Over the last three years an equally-weighted index of major emerging market currencies has fallen no more against the US dollar than an index comprising the euro and the yen. And despite all the recent turbulence in financial markets, there have been no...

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    Gavekal Research

    Has The Asian Currency Collapse Run Its Course?

    The past four months have seen an unprecedented divergence in the performance of developed market and emerging market currencies, with Asian units getting sucked into the EM downdraft even though their manufacturing-heavy economies should, on paper, be beneficiaries of the commodity collapse. Or to be more specific the more than 10% decline in Asian currencies against the euro over the last four months has been a near two standard deviation...

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    Gavekal Research

    The US Current Account Deficit And World Markets

    Spotting turning points in the US current account is central to Gavekal’s research method, as such shifts impact all other economic relationships. When the US dollar is strong the US tends to run a big current account deficit, providing the world with lots of “earned dollars.” Conversely, a weak dollar eventually leads to a shrunken US current account deficit and more incentive to borrow in dollars. Big moves in the dollar exchange rate create...

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    Gavekal Research

    The Four Horsemen Of The Apocalypse

    Markets are entering bear market territory and what vexes Charles and Louis is whether the root cause is a liquidity crunch, a solvency crisis or a deflationary bust. In this wide ranging chart book they explore the problem through the revelatory prophecy of four riders whose presence marked the coming of judgement day. We don’t mean to pile on the misery in what is shaping up as a tough week and the moderately good news is that the-end-of-times...

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    Gavekal Research

    No Light At The End Of The Tunnel

    Four years of grizzly underperformance has turned everyone into an emerging markets bear. First it was the currencies of the twin deficit countries that took a hit in the 2013 taper tantrum. Then it was the EM resource producers that faced the crunch when commodity prices halved in just 12 months. Now liquidity which had found its way into the healthier emerging markets in Asia is rushing out the door after China’s currency shock tilted the risk...

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    Gavekal Research

    A Solvency Crisis Or A Liquidity Crisis?

    Over the past five years, critics of zero-interest rate policies have typically fallen into one of two camps:

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    Gavekal Research

    Emerging Asia’s Nightmare

    The investment case for Asian currencies has been a tough one to make over the last year as stagnant global trade and a stronger US dollar has constrained the growth outlook. Still, until this week’s “renminbi shock”, the region’s reasonable fundamentals and decent yields continued to justify a holding in Asian currencies. After China’s “devaluation”, this risk-reward position has changed as regional currencies look like prime victims of Beijing...

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    Gavekal Research

    Sorry Singapore Patriots, You Are A Great Short

    On most matters the Gavekal house view is best explained by the fact that we don’t have one. Charles for now stands out as the house bear due to his concerns about a global system enfeebled by policymakers’ misguided efforts to ameliorate all risks. Our more bullish group, led by Anatole, reckons that “creative destruction” is afoot, but outdated national income accounting tools are not capturing the benefits delivered by digital globalization....

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    Gavekal Research

    Japan’s ROE Revolution

    The adoption of a UK-style “stewardship code” and an officially sanctioned index of companies that satisfy minimum corporate governance standards (JPX-Nikkei Index 400) marks a serious attempt by Japan to boost both corporate productivity and shareholder returns. This effort is integral to the economic rejuvenation plan of Prime Minister Shinzo Abe, and arguably failure is not an option for an economy that a few years ago had started to flirt...

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