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E.g., 22-10-2017
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    Gavekal Research

    Asia’s Best Story Tops Out

    On the face of it, the Philippines offers one of Asia’s best economic stories. Whatever you think of Rodrigo Duterte’s war on drugs, growth remains decent at about 6.5%, big tax reforms are in the offing and after years of promising action, infrastructure may soon actually get built. This has unfolded with public debt falling from more than 65% of GDP in 2006 to 42%. And yet the Philippine peso has slid -8% since Duterte took office in June last...

    1
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    Gavekal Research

    EM Can Handle Fed Fallout

    Yesterday, the “world’s central bank” confirmed that it will reverse its quantitative easing policy and likely raise interest rates in December and then three times in 2018. On the same day, the benchmark emerging market index nudged higher and is only a whisker off a six year high. Ordinarily, Federal Reserve tightening is terrible news for EMs, especially for those economies with the temerity to simultaneously try policy easing. Yet this is...

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    India Macro Update: The Risk In The Rupee

    Indian Economic growth in the second quarter was expected to slow due to the impact of “demonetization” and a new sales tax being rolled out, yet the biggest hit to growth came from an overvalued rupee hitting net-exports. The impact of a strong currency may be to defer India’s capital spending cycle and put the economy on a lower growth trajectory. Since Indian equities are richly valued, Udith and Tom are cautious about their outlook. In this...

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    Gavekal Research

    It Is Not Slack Weighing On Wages

    How can a labor market be very tight, yet have barely any wage growth? In today’s daily Nick tackled this for the UK and found a mix of universal and idiosyncratic causes. For the US and Japan a frequent refrain is that official data hugely understates the potential size of the workforce and so a ready source of “slack”. Will and Udith beg to differ.

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    Audio & Transcript — Gavekal Research August Call

    In this week's call Tom Miller and Udith Sikand presented their view on India's macroeconomic situation and opportunities for foreign investors. Tom outlined the broad macro fundamentals and assessed the Modi government's progress in reforming the economy. Udith presented the investment consequences, expecting a capex revival to begin as soon as next year.

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    Strategy Monthly: India — Poised For A Pickup

    India clearly offers one of the best long-term growth stories in the world today. In 2016 for the first time it added more to global nominal GDP growth than China. Demographics are favorable, opportunities for infrastructure- and housing-driven growth are abundant, and despite some hiccups the Modi government has done a good job of taming inflation and setting the country on a structurally sounder path. For investors, the problem is that Indian...

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    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

    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

    EMs And A Chill Trade Wind

    The Asian trade cycle, having perked up notably since mid-2016, shows worrying signs of rolling over. Korean export growth in May halved from a month earlier, while Taiwan has seen the same measure steadily slow since February. Today, China reported a reduction in export growth to single digit levels, while import demand growth for May fell to 15% YoY, compared to 38% in February. To an extent, this can all be explained by flattering base...

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    Gavekal Research

    India Macro Update: Navigating The Fog

    In this regular quarterly update, Udith and Tom survey the key developments in India’s macro-economy and markets, which have been clouded by the demonetization episode and yet more changes to national economic statistics. The fog may not be about to clear as the government prepares to rollout a new national goods and sales tax with the potential for significant economic disruption.

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    Gavekal Research

    Video: India's Economic Fog

    In this interview Udith discusses the key developments in India’s macro economy and markets, which have been clouded by the demonetization episode and yet more changes to national economic statistics. The fog may not be about to clear as the government prepares to roll out a new national goods and sales tax with the potential for significant economic disruption.

    0
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    Gavekal Research

    Don’t Buy The Smartphone Hype

    As Apple prepares to launch its anniversary iPhone and Samsung unveils models that don’t blow up, technology equities in the US and Asia have soared on hopes for a new smartphone cycle. After 2016 saw high-end smartphone sales fall, investors are betting that consumers respond to gee-whizz gadgetry by replacing their devices more often. We are not so sure.

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    Gavekal Research

    A Clearer Picture In Seoul

    South Koreans went to the polls yesterday and elected a special forces soldier turned human rights lawyer as president. Moon Jae-in will need both skillsets in dealing with a belligerent North Korea, distrustful China and saber-rattling US. Yet an even tougher ask may prove delivering on his promises to shake up collusive ties between big business and the government, and so unleash animal spirits. I would argue, however, that for once the...

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    Gavekal Research

    Calling Time On Indian Outperformance

    Indian equities have been on a tear this year with their 22% currency-adjusted gain only bested among emerging markets by Poland. This is not surprising given that India has strong fundamentals and a reform-minded government that still enjoys popular support. Yet, while long term positive drivers for the Indian market remain intact, equities have run ahead of themselves by pricing in a swift return to robust earnings growth.

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    Gavekal Research

    The End Of Yen Outperformance

    Year-to-date, the yen is the best-performing of the G10 currencies. Over the last four months it has appreciated 5.2% against the US dollar, lifted by abating enthusiasm for the Trump trade and safe haven flows into Japan. Given the tight inverse correlation between the yen and Japanese equities, it is therefore no surprise that the Japanese stock market has underperformed its developed market peers so far this year.

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    Gavekal Research

    The New EM Intervention Playbook

    In recent years emerging market central banks have taken to intervening to support their currencies against depreciation pressure using non-deliverable forward contracts settled in local currency, a technique that helps preserve the headline value of their foreign exchange reserves. Although the strategy bought time in Brazil and Mexico for more fundamental policy changes to take effect, non-deliverables are no magic bullet.

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    Gavekal Research

    Hong Kong Seminar — March 2017

    In Gavekal’s Asia focused seminar in Hong Kong last week Arthur Kroeber, Udith Sikand and Tom Holland presented their outlooks for the rest of the year.

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    Gavekal Research

    Like Japan, Love Korea

    Ignore for the moment the drumbeat to hostilities on the 38th parallel; it has still been a head-spinning few weeks in the normally staid world of South Korean governance. First, the head of Samsung, the country’s biggest company, was arrested on bribery charges, and then last Friday saw President Park Geun-hye ousted by impeachment. It is our view that a political upheaval is afoot in Seoul that threatens the collusive ties between officials...

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    Gavekal Research

    Modi’s Big Political Win

    After a shaky few months, India’s reform project is back on track. The ruling BJP’s unexpectedly strong performance in state elections will enable Prime Minister Narendra Modi to continue with pro-business policies that should both deliver economic growth and buoy equity markets.

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    Gavekal Research

    India’s Property Dream

    In India, home building constitutes just 1% of GDP and fails to satisfy basic amenity demand—some 60mn Indians live in urban dwellings deemed unfit for human habitation. The good news is that India is getting serious about supporting residential property development, which could yet have a China-like impact on domestic demand and global commodity markets.

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