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

    Worth Buying This Japanese Dip

    Those with an active interest in Asian markets had much to process in early trading with shorts cheered by the hardly surprising news that Iran and Saudi Arabia could not agree on an oil production freeze, while longs could point to China whose 1Q15 GDP report on Friday seemed to confirm that the authorities will do whatever it takes to defend their near-term growth targets. But perhaps the bigger factor unnerving investors has been the fallout...

    0
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    Gavekal Research

    The Yen And Japanese Equities

    It is hard not to feel a smidgen of sympathy for Haruhiko Kuroda. In the last 18 months, the Bank of Japan governor has deployed a whole battery of heavy artillery, stepping up his asset purchases to ¥80trn a year, extending them to cover exchange-traded funds and real estate investment trusts, and pushing short term interest rates into negative territory. As well as supporting asset markets, much of this effort was aimed at driving the yen...

    0
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    Gavekal Research

    Fade The Emerging Market Rally

    In defiance of conventional wisdom the oil price has tumbled -10% in the last two weeks despite a weak US dollar. For emerging markets investors, the breakdown of this correlation raises tricky questions.

    0
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    Gavekal Research

    Dollar Liquidity And Its Dependents

    One of our long-standing rules of thumb has been that a deteriorating US trade balance is good news for the rest of the world, and especially for emerging markets. It is thus a positive sign that the ex-energy, ex-China trade balance shifted from surplus to a deficit in 2015, sending US$150bn to the world outside of China and the oil exporters. The overall trade balance is likely to continue worsening through late 2017, thanks to the lagged...

    5
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    Gavekal Research

    The Yen And Hard Truths

    The renewed “risk-on” moves of recent weeks has seen a vicious rebound in commodity prices, renewed stability in credit markets and, notably, a decline in the euro, which has fallen back to its early year level against the US dollar. The big outlier in these moves is the Japanese yen, which has become the new strong man of the currency world.

    0
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    Gavekal Research

    Not Yet The Buy Of A Lifetime

    With emerging market equities up 13% over the last three weeks, and outstripping developed markets over the year to date, the notion is gaining traction that after four years of underperformance emerging markets are now “the buy of a lifetime”. Investors should be cautious. While it is indeed possible that emerging markets could continue to rally over the next few months as the US dollar tops out and commodity prices stabilize, the longer term...

    2
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    Gavekal Research

    The Avoidance Of Debt Traps

    Yesterday saw Asia’s two big emerging economies adjust economic settings to deal with their respective debt problems. China cut the required reserve ratio that banks must hold by 50bp and India’s government rolled out a cautious budget. Both countries' actions, while different in nature, reflect sensible responses to testing circumstances.

    0
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    Gavekal Research

    The Gavekal Monthly: Nothing To Fear But Fear Itself

    February saw some stability return to markets as investors got more comfortable with China’s currency policy and became less convinced that the Federal Reserve made a fatal mistake in December by raising interest rates. In this edition of the Gavekal Monthly Anatole assesses the big worries for global investors, while other writers focus on the burning currency questions in the major economic regions.

    0
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    Gavekal Research

    Japan’s Point Of No Return

    On January 29 the BoJ destabilized Japan's market equilibrium with a poorly communicated shift to negative interest rates. The message received by the market was that Governor Haruhiko Kuroda was making a desperate gamble with the suggestion that the BoJ’s quantitative-easing strategy had run up against key limits.

    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

    Going Down With The Renminbi

    Emerging markets have faced significant headwinds ever since the “taper tantrum” of mid-2013 when investors began to factor in tightening moves by the Federal Reserve. Their headache got much worse last summer when China allowed a mini-devaluation of the renminbi, and 2016 is hardly starting well. The root problem is that most emerging markets are over-geared and need to ease policy if growth is to be kick-started. Unfortunately, easing is...

    4
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    Gavekal Research

    The Gavekal Monthly: The Balance Of Risks

    The new year has been a wild ride so far, with sharp drops in the renminbi, Chinese stock markets, and oil prices leading global markets down. In our first Gavekal Monthly of 2016 we try to make sense of the risks facing investors today. As usual there are some strong differences of opinion: Anatole argues that developed economies are in decent shape, the dollar's rise will soon be over, and equities should post a better performance than...

    0
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    Gavekal Research

    Are Emerging Markets Cheap?

    On the face of it, the valuation of emerging markets looks compelling. After declining -30% from its 2011 high, the MSCI Emerging Markets index is now at a forward P/E ratio of 12, a third cheaper than the S&P 500. As a result, the valuation premium of developed over emerging equity markets is close to its highest in more than ten years. What’s more on average, emerging-market currencies are now below fair value against the US dollar,...

    1
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    Gavekal Research

    The Gavekal Monthly: A Cloudy Currency Outlook

    The Gavekal Monthly outlines our highest conviction ideas and summarizes the key economic, market and thematic views held by the firm’s partners and analysts. This report is an attempt to answer a question that we are often asked, but find it hard to answer: "What does Gavekal think?".

    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

    Not So Bad In Japan

    Japan, as of Monday, was back in recession after GDP in 3Q15 shrank by -0.8% YoY, a second successive quarterly contraction. Such weakness supports a growing consensus that the economic renewal program of Prime Minister Shinzo Abe—based on the idea that monetary easing would spur domestic reflation—is a busted flush. For the bears, the question is when, not if, Japan tilts back into full-blown deflation. We are not so sure about this view, and...

    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

    The Danger Of Further BoJ Easing

    There is growing speculation that the Bank of Japan may follow the European Central Bank, which last week signaled additional easing, and the People’s Bank of China, which cut rates on Friday, and surprise the markets with further credit easing. But while extra action from the BoJ could be a short term shot in the arm for the equity market (or not, given the underwhelming response to China’s easing), it is doubtful whether additional easing will...

    1
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    Gavekal Research

    Japan's Deal Of The Decade

    Today will be a day of celebration for many Japanese investors, as they find out whether they have hit the jackpot with an allocation of shares in the initial public offerings for Japan Post Bank and Japan Post Insurance. Together with the IPO of Japan Post Holdings, which will be priced next Monday, the three deals are expected to raise some ¥1.4trn (US$11.7bn), making the joint offering Japan’s largest since the 1998 IPO for telecommunications...

    0
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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...

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