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E.g., 21-07-2017
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    Gavekal Dragonomics

    Reasserting Control Over Outbound Investment

    The flow of cross-border M&A from China is reviving as the crackdown on capital flight eases. But as Yanmei argues, the flow of deals is unlikely to repeat the stunning growth surge in 2016, as the government has now reasserted its control over outward direct investment. This environment will likely be friendlier to state firms than private ones.

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    Gavekal Research

    Watch US-Eurozone Rate Differentials

    Interest rate differentials between the US and eurozone are wide by historical standards. This is no surprise. The US has enjoyed uninterrupted growth (at least in year-on-year terms) since 2010, and today the Federal Reserve stands as the most hawkish big central bank in town. In contrast, the eurozone slumped back into recession in 2012, and the European Central Bank remains in full-blown easing mode. As a result, interest rate differentials...

    2
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    Gavekal Research

    Who’s Afraid Of The ECB?

    Mario Draghi’s hint last month that the European Central Bank’s bond buying may not continue forever unleashed a storm of panic among the perma-bears who still dominate the media and market commentariat. But its actual effect on markets themselves has so far been close to minimal. So should investors worry—or relax—about a repeat of the “taper tantrum” in May 2013, when Ben Bernanke first hinted that the Federal Reserve would eventually start to...

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    Gavekal Research

    Video: New Investment Opportunities In China

    China’s onshore financial markets are opening up. Admittedly, neither last month’s inclusion of Chinese A-shares in MSCI’s benchmark indexes, nor this month’s opening of the Bond Connect scheme, will change the world immediately. But together they signal that Beijing is serious about opening its capital markets to foreign investors.

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    Gavekal Research

    The Lost Decade

    Next month will mark the tenth anniversary of the Global Financial Crisis, and the developed world’s GDP per capita still lingers 20-25% below its pre-crisis long term trend. Were there no good economic policies to deal with the aftermath? Far from it, argues Anatole, but four features of post-crisis politics and ideology blocked constructive policy responses.

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    Gavekal Research

    Signs China’s Tightening Has Peaked

    Official statements following the conclusion of Beijing’s National Financial Work Conference signal that the recent tightening cycle has now peaked and that market interest rates are likely to fall from current levels, argues Chen Long. The story remains that while Chinese reflation has peaked, the ensuing slowdown will be moderate and gradual.

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    Gavekal Dragonomics

    The Regional Bottom Line For Growth

    China’s 2016 stimulus likely provided enough momentum to ensure GDP growth in 2017 will meet the 6.5% target. But on closer examination the stimulus looks as much a rescue operation for troubled regions as a shift in national policy. This interpretation implies that the political drivers of Chinese policymaking are different from what most commentators believe.

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    Gavekal Research

    EM Asia’s Most Sensible Market

    The “safety first” stance of Indonesian fiscal and monetary policies has contained the country’s budget deficit, restored its investment grade credit rating and capped inflation. Granted, these policies have come at the cost of lackluster growth. However, with the rupiah undervalued and plentiful carry available, Udith still sees opportunities in local currency bonds.

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    Gavekal Research

    Making Sense Of Mario Draghi

    Mario Draghi got people scratching their heads last month. “As the economy continues to recover, a constant policy stance will become more accommodative,” declared the European Central Bank president. “The central bank can accompany the recovery by adjusting the parameters of its policy instruments—not in order to tighten the policy stance, but to keep it broadly unchanged.”

    0
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    Gavekal Research

    The State Of US Inflation

    In her testimony to Congress yesterday, Federal Reserve chair Janet Yellen attributed the weakness of US inflation to temporary factors. As a result, the Fed remains focused on tightening policy. However, given that US inflation has consistently undershot the Fed’s target, any further decline will raise concerns that the US business cycle is rolling over.

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    Gavekal Research

    Audio & Transcript — Gavekal Research July Call

    Recent efforts to open up China's stock and bond markets have granted deeper access for foreign investors. In Tuesday's conference call Thomas Gatley outlined what MSCI's decision to include A-shares in its indexes means for investors, while Chen Long argued that the next great bond bull market may happen in China.

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    Gavekal Research

    End Of The Line For EM Dollar Debt?

    As if alarmed by the realignment in global financial markets over the last few weeks, Janet Yellen struck a slightly more dovish note in her Congressional testimony yesterday. Yet the Federal Reserve chair’s more nuanced words are unlikely to temper by much the developing skepticism among investors towards the US dollar bonds of emerging markets.

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    Gavekal Research

    The Wile E. Coyote Moment

    Sometimes financial markets can look a lot like Wile E. Coyote. So intent was the old Looney Tunes character on chasing the Road Runner, that he somehow never realized when he had shot over the cliff’s edge. For a few moments he would continue in thin air, legs a blur, supported by momentum and incomprehension. Only when he looked down... In much the same way, financial markets often continue their trend after the underlying conditions change,...

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    Gavekal Research

    On The Demise Of Populism

    Anyone who bought European equities in the wake of Emmanuel Macron’s impressive win in the French presidential election is down a few percent in euro terms and underperforming global equities by about 1%. Charles are Louis are not convinced that this can be explained away by the markets taking a “breather” after a big run up. They smell darker forces at work.

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    Gavekal Dragonomics

    The Peak In Home Appliances

    When you buy a house, you also buy things to go in it—yet the rebound in housing sales over the past 18 months has not done much for sales of major home appliances. As Ernan explains in this piece, Chinese demand for washing machines, refrigerators and televisions has now more or less peaked. The main exception is the humble air conditioner.

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    Gavekal Research

    Into My Indian Arms

    Last week Louis argued that the most likely growth area for richly valued defense contractors was Western-aligned powers in East Asia. The problem was that despite rising regional tensions, India and Japan were playing hard to get (see Should Investors Chase Defense Stocks?). Last week’s events on the Korean peninsula should give the merchants of death a fresh calling card in Tokyo, Seoul and Taipei. Yet while garnering fewer headlines, the...

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    Gavekal Research

    The Payrolls Paradox: Tight Labor But Weak Wage Growth

    As usual the market focused closely on the headline number in last Friday’s employment report, which saw non-farm payrolls come in at a stronger than expected 220,000 in June. As usual, we caution against reading too much into any one month’s figures, for the reasons Anatole has explained so elegantly (see Beyond The March Payrolls Soft Patch). Instead we prefer to take a step back and to attempt to answer the two big questions currently hanging...

    5
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    Gavekal Research

    Don’t Give Up On Eurozone Equities

    When a market fails to rally further on successive rounds of good news, investors can be forgiven for feeling a tad nervous about the outlook. It is little surprise, therefore, that many portfolio managers are expressing skepticism about the near-term sustainability of the bull market in eurozone equities. Since the election of Emmanuel Macron as French president two months ago, the macro headlines from the single currency area have been...

    0
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    Gavekal Research

    Italy: Stuck At The Back Of The Peloton

    In the Tour de France, the cyclists at the back of the peloton benefit enormously by riding in the slipstream of stronger competitors at the front of the pack. That’s fine for most of the time, but when the leaders stage a breakaway, the weaker riders can struggle to maintain the pace.

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    Gavekal Research

    What Could Turn Around The US Business Cycle? Hint: Not Much

    As often happens, US data is sending mixed messages. Yesterday’s ADP report showed weak job growth in June, despite the latest ISM service sector PMI being decidedly perky. Investing according to the latest high-frequency growth data is a good way to get whiplash. Instead, let’s take a step back and review the US economy’s overall positioning.

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