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E.g., 16-10-2018
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    Gavekal Research

    Asia And The Emergence Of A New Monetary Zone

    Having broadly developed as an integrated whole over the last 30 years, Charles thinks the world economy is now splitting into three big groups—North America, Europe and Asia. In this piece he considers Asia whose economies are increasingly coalescing around the renminbi and suggests a new-fangled balanced portfolio approach for maximizing risk-adjusted returns.

    3
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    Gavekal Research

    The Near Term Direction Of The US Dollar

    The US dollar is trading bang on its 50-day moving average, and roughly where it was a year ago. Hence, it is tempting to conclude that it has not done much over the past 12 months. That would, of course, be wrong for the post-April rebound in the dollar explains the summer meltdown in emerging markets. And every investor today stands ready to increase or decrease risk in their portfolios depending on the next tick in the US dollar.

    17
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    Gavekal Research

    An Irresistible Trade Policy Meets Immovable Interests

    The US-China trade war is coming, and it will not be a short one. The reason, Arthur writes, is that the Trump Administration is waging war not just on China, but on American multinational companies. The goal is to “decouple” the world’s two largest economies by encouraging US firms to invest less in China and more back home.

    0
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    Gavekal Research

    Why The US Cannot Win A Trade War

    The US has made a fundamental policy mistake in pursuing a trade war against China. A Keynesian macroeconomic analysis shows that the US will likely be worst affected by the conflict, while China should escape unscathed and several other emerging markets could be clear gainers. This sell-off may be an ideal opportunity to "buy the dip" in EMs

    7
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    Gavekal Research

    Europe’s Populist Wave Peaks

    Since the migration crisis of 2015, nationalist-populist movements have been on a tear across Western Europe. Sunday saw the anti-immigrant Sweden Democrats boost their ranking, and even claim to be the election’s real winner. Yet look closer and what stands out over the last two years has been such parties’ failure to fully break through.

    2
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    Gavekal Dragonomics

    The Drive For Affordable Drugs

    China’s healthcare reforms have created new opportunities for global pharmaceutical firms and made healthcare a favored sector for many investors. But as Ernan explains, the government’s top priority these days is controlling healthcare costs, especially drug prices. That trend makes it trickier to profit from China’s healthcare growth story.

    0
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    Gavekal Research

    The Exit From A Liquidity Squeeze

    If it walks like a duck and quacks like a duck, then it probably is a duck. By the same token, if central bank reserves are shrinking, the US dollar is rising, and emerging market currencies are cratering, we probably face a liquidity squeeze. None of this should be surprising, as the drains on US dollar liquidity have come from all directions this year.

    7
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    Gavekal Research

    The Case Against Eurozone Stocks

    The eurozone may not face the kind of liquidity crunch roiling US dollar-based emerging economies, but its equity markets remain on a grinding downward trajectory. The MSCI EMU index is within 1.0% of this year’s low and a range of technical indicators make for ugly reading. I would advise global investors to generally avoid the single currency area, but for those who must be there I will slightly surprise myself by arguing that the eurozone’s...

    0
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    Gavekal Dragonomics

    The Property Slowdown That Wasn't

    While China’s government is talking tough about containing its frothy property market, the market does not appear to be listening. Housing sales are still growing, price rises are accelerating and construction activity is robust. In this piece, Rosealea explains why property has outperformed, and updates her outlook for the rest of 2018.

    0
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    Gavekal Research

    The Signaling From US Autos

    Even as the US economy fires up on tax cuts and government spending, interest rate-sensitive sectors show signs of rolling over. First it was housing, and now auto sales have slid to the lower end of their range after steadily softening this year. Over the next year, the question is less whether autos can boost growth, as how much they will detract from it. The fact that the Trump administration is still considering significant tariffs on...

    2
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    Gavekal Research

    On Getting It Wrong

    Louis went into 2018 with a set of assumptions about how growth and markets around the world would play out. It hasn’t exactly worked out as expected and in this mea culpa he seeks to understand how he got it wrong and what comes next. He concludes that a key driver of the changed investment environment was not so much the strength of the US dollar but China’s decision to allow a renminbi devaluation.

    10
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    Gavekal Research

    The Korean Advantage

    Yesterday was another bad day for weak-link emerging markets battling a rising US dollar. Still, my contention during this year’s EM sell-off has been that investors should sort the wheat from the chaff. With a current account surplus of 5% of GDP and forex reserves of US$400bn, exhibit-A is South Korea.

    0
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    Gavekal Dragonomics

    Choosing The Trajectory For Household Debt

    Regulators and investors are getting more concerned about China’s household debt after its sharp rise in recent years. In this piece, Chen Long breaks down the rise in leverage and explores the policy options. It would be plausible and prudent for China to now slow the buildup of household debt—but this may not mesh with the easing of policy.

    2
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    Gavekal Research

    Strategy Monthly: A Simple Guide To US Asset Allocation

    We synthesize four years of work on asset allocation and present a model portfolio built around analysis of the cost of and return on capital; the real rate of return on equities, bonds and cash; and the ideal duration of fixed-income holdings. Today we recommend that US portfolios hold 75% in equities, 25% in cash, and shun bonds.

    0
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    Gavekal Research

    Italy’s Chaotic Tendency To Stabilize

    Italian debt holders have been spooked by a leading figure in the country’s populist government threatening a fiscal blowout. The spread between 10-year BTPs and bunds has widened to 282bp, exceeding the May 30 level when the latest coalition was formed in chaotic circumstances. Such rhetoric threatens the relatively benign scenario that I advocated in July and has investors fretting about another eurozone crisis. While Italian politics will...

    2
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    Gavekal Dragonomics

    An Overdue Tax Cut For Households

    Facing trade conflict with the US and a slowdown in credit growth, China is under pressure to use fiscal policy more aggressively to support the economy. On Friday, the National People’s Congress delivered on at least part of the solution, passing a large cut in personal income taxes. In this piece, Ernan explains the impact of this tax cut.

    0
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    Gavekal Research

    Video: An Unexpected Investment Environment

    With the exception of US equities, about the only other way most investors could have achieved a positive return this year was to have held US dollar cash. That has made for a very strange investment environment that few people saw coming. In this video interview, Louis reviews the experience of the last eight months and outlines potential scenarios for the remainder of 2018.

    0
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    Gavekal Research

    Europe’s Whimpering Economic Cycle

    As with most of the developed world, the eurozone has seen a breakdown of the Phillips Curve link between inflation and unemployment. The 2008 crisis and ensuing double-dip recession created a sclerotic environment where labor market dynamics had little impact on general prices. This is another way of saying that Europe’s economy has remained stuck a in low-growth funk. Last year that seemed to have finally changed, with cyclical forces driving...

    0
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    Gavekal Research

    Disentangling The EM Mess

    It has been tough reconciling weak emerging market performance this year with their generally decent macro fundamentals. Charles pins the blame on a US dollar squeeze and will publish an update later today. By contrast, Anatole reckons that markets have made a mistake in assuming that EMs are especially vulnerable to a strong US dollar. I see merit in both positions, but do not buy the fact that there is a catch-all explanation for what is going...

    0
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    Gavekal Research

    An Update On The Dollar Liquidity Crisis

    Yesterday saw a worsening of the US dollar squeeze faced by weak links such as Argentina and Turkey. For much of this year, Charles has been on the lookout for market dislocations due to vulnerable economies having too few readily available dollars. One of his key tools has been the “world monetary base” and that is now sending worrying signals.

    15
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