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E.g., 29-07-2017
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    Gavekal Research

    Stay Long Ruble Bonds

    Russia has been a consensus overweight among emerging market managers since early 2016. They have been handsomely rewarded. Over the last 12 months, ruble-denominated Russian finance ministry bonds, known as OFZs, have returned 37% in US dollar terms. Small wonder then that over the same time period non-resident holdings of OFZs have increased from 21% of outstanding issuance to 27%. After such an impressive outperformance, it is natural to ask...

    0
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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...

    2
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    Gavekal Research

    The US$10 Trillion Question

    Over the last seven years, emerging markets have been stuck in a trading range they show no sign of exiting. For this reason, in Asia at least, I have advised investors to adopt a market timing strategy based on return-to-the mean valuation measures (see Go Contrarian In Asia). The problem with this approach is that it works until it doesn’t. So what could cause a breakdown? Charles for one worries that the presence of a huge global US dollar...

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    Gavekal Research

    Assessing EMs Vulnerability To The Trump Trade

    Emerging markets have faced selling pressure since Donald Trump’s US presidential election win started to drive treasury yields higher. EM debt funds saw their largest ever outflow the week after the election, while currencies have fallen on fears of trade protectionism and more talk of the US dollar being primed for a 1980s-style super-spike. Given this basket of worries, Joyce revisits her “emerging market relative balance sheet vulnerability...

    0
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    Gavekal Research

    Go Contrarian In Asia

    Investing in Emerging Asia is tricky due to the high volatility that exists within the overall trend of the region’s asset markets. Hence, market-timing has become a fairly essential strategy. It was not always so, for between the mid-1980s and 2010 Emerging Asia was a fairly straightforward call—“all in” worked during structural bull markets, and “all out” was the way to go during periodic bear markets.

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    Gavekal Research

    A Free Hedge In Hong Kong

    Cost effective hedges are getting increasingly hard to find. However, the US dollar-Hong Kong dollar forward market offers a cost-free hedge against global volatility, explains Joyce, with 12-month forwards likely to move from their current discount to a handsome premium over spot in the event of a general risk-off move.

    0
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    Gavekal Research

    The Next Monetary Move

    Shinzo Abe was today scheduled to meet with Ben Bernanke, the chief architect of unconventional monetary policy responses following the 2008 crisis, with the issue of Japan’s adoption of so called helicopter money expected to top the agenda. In this piece Joyce asks would Japan do it and more importantly could money drops make any difference in the land of the stagnant price index.

    3
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    Gavekal Research

    Ignore Japan’s Banks At Your Peril

    Any investors contemplating adding to their Japanese equity exposure following Shinzo Abe’s weekend election victory and the subsequent market rally should look closely at the performance of Japanese bank shares. Their signal, argues Joyce, is anything but encouraging.

    3
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    Gavekal Research

    What Constitutes A Certain Investment In Today’s Market?

    What concerns investors most in these tricky post-Brexit times is the sheer uncertainty of it all. No matter whether the “Leave” camp can work out a non-ruinous strategy for Britain to exit the European Union or “Remain” can exercise some kind of parliamentary blocking action against this “terrible mistake”, there is agreement that things will get messier before the picture clears. Even if the UK-EU “divorce” proves a rational end to a...

    0
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    Gavekal Research

    Japan: Twice Bitten, Thrice Shy

    It was a case of twice bitten, thrice shy. This week Shinzo Abe announced he will postpone next April’s planned 2pp increase in Japan’s sales tax until October 2019—a step the prime minister had previously sworn he would only take in a Lehman-scale crisis. Despite Abe’s protestations to the contrary at last weekend’s G-7 meeting, the world economy is facing no such meltdown. Nevertheless, deferring the tax hike makes sense. Previous increases in...

    0
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    Gavekal Research

    The Chinese Debt Resolution

    China’s chosen development approach of investment-led industrialization meant it was fated to face an eventual debt crisis. Like Taiwan 30 years ago, China has moved from an export-driven economy to one motored by domestically-focused investment spending. Its challenge has been to “rebalance” toward consumption and in the process stop an escalating build-up of debt which funds projects with ever lower returns. Yet so long as China has a...

    0
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    Gavekal Research

    Is Japan’s Building Boom For Real?

    As followers of our specialist Gavekal Japan Alpha service will know, something of a construction boom is emerging in Japan. At first glance this seems surprising, especially given that Japan is pedaling into some severe demographic headwinds. According to the 2010 national census, Japan’s population did grow between 2005 and 2010—but only by 0.2% over the five-year period, to reach 128mn. Over the coming decades, that anemic demographic growth...

    0
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    Gavekal Research

    Indonesia: After The Pain Trade

    Indonesian assets did well out of the late summer pain trade, with equities and rupiah bonds both rallying by around 20% in US dollar terms. Even more encouragingly, they have since held on to most of those gains as commodities have tested new lows. This is a signal that the rupiah has fallen enough over recent years to allow Indonesia’s economy to adjust to the end of the commodity boom. That makes the high yields on rupiah-denominated bonds...

    0
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    Gavekal Research

    China’s Half-Hearted Rebalancing

    The risk for China’s relatively closed economy was never that it would suffer a standard emerging market solvency crisis. The real worry was that it would duck the hard decisions needed to navigate a transition from capital-intensive growth to a broader model of development. I have been cautiously optimistic over the last three years that Beijing would take the necessary medicine, but am coming to the conclusion that it is instead set on the...

    1
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    Gavekal Research

    No Real Respite In Brazil

    Dilma Rousseff yesterday won a temporary reprieve from a threatened impeachment and Brazilian assets promptly took a beating. Investors seem to be hoping for a presidential ouster as an end to the political turmoil which has killed any chance of fiscal consolidation or structural reform. With an emerging market bounce seemingly ebbing, Brazilian assets do not offer an appealing risk-reward profile—even after yesterday’s sell-off, the real has...

    0
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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...

    0
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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...

    0
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    Gavekal Research

    Black Days In Brazil, But No Black Swan

    The end is not yet in sight for Brazil’s dreadful recession. The seasonally-adjusted economic activity index was down –3% YoY in June, and the current consensus forecast for full-year GDP growth is –1.7%, against +0.5% in January. Continued tightening of monetary and fiscal policy, coupled with lackluster external demand, makes possible a second year of economic contraction in 2016. The Brazilian real has lost -16.5% against the dollar this year...

    0
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    Gavekal Research

    The Xi Jinping Put

    Over the weekend the Chinese government rushed out an unprecedented grab-bag of measures intended to support the free-falling A-share market, which by Friday’s close had tumbled 29% from its mid-June high. By deploying almost every weapon in their armory, the authorities managed to arrest the market’s slide, at least in the immediate short term. By the close of trading on Monday, the Shanghai market was up 2.4% from Friday’s close. But there is...

    3
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    Gavekal Dragonomics

    Chinese Equities And The Taiwan Syndrome

    Is China’s equity market going through a structural re-rating, or blowing up a bubble fueled by easy money and dumb investors? The broad Gavekal view is that China is again pursuing transformative economic reform which should end with a less meddling state and a greater role for market forces (see The New Way To Think About China). In emerging markets, such bursts of reform usually follow a financial crisis so conditions are rarely conducive to...

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