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    Gavekal Research

    Anatomy Of The Bear

    I wish I shared Anatole’s degree of conviction. In yesterday’s Daily he set out his belief that the current sell-off in financial markets is not the start of “a structural ‘bear market’, still less a structural Ursus Magnus likely to last for many years” (see Is Wall Street In A ‘Bear Market’). I am not so sure. I suspect that what we are witnessing may indeed be the emergence of an Ursus Magnus, the sort of bear market so deep and prolonged...

    2
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    Gavekal Research

    Don’t Buy The BoJ Bluster

    Haruhiko Kuroda, the Bank of Japan Governor, has presided over a pick-up in domestic demand and seems loath to have it extinguished by a global growth scare. Last week he hinted that he was ready to do more, and subsequent press leaks point to a further expansion of his quantitative easing program. One reason to think a big bazooka may be rolled out at Thursday’s policy-setting meeting is that a month ago the BoJ mildly expanded its QE operation...

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    Gavekal Research

    Looking For The Bright Side

    By most measures, the first two weeks of 2016 have been the worst-ever start of the year for risk assets. With the MSCI All-Countries index down nearly -20% from last May’s high, we are now in a global bear market.

    1
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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

    ASEAN Could Yet Matter

    Until the Asian Financial Crisis of the late 1990s, Southeast Asia’s export-led development was driven by ethnically-Chinese entrepreneurs who ran dispersed production that mostly supplied the garment, electronics and consumer goods sectors. By the mid-2000s these relationships had greatly simplified, with the economies of the Association of South East Asian Nations either slotting into the Chinese manufacturing supply chain, or alternatively...

    0
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    Gavekal Research

    Forget About Oil And China, Look To The US In 2016

    On the whole, 2015 was a year for investors to forget. US bond and equity prices were both flat, equity gains in Europe were mostly wiped out (for US dollar investors) by the fall of the euro, and commodity plays and high-yield issues crumbled. China sparked a brief panic after a clumsy intervention to cushion a stock-market collapse and an unexpected currency devaluation, but by the end of the year the Shanghai index was still up nearly 5% in...

    0
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    Gavekal Research

    The Clash Over Fossil Fuels

    Over the weekend in Paris, the leaders of 195 nations announced a landmark deal to address climate change that its more optimistic supporters say heralds “the end of the fossil fuel era.” But both market action and many government policies point in the opposite direction. Crude oil prices continue to tumble towards the US$30 mark, and coal prices have also collapsed—both moves that reflect abundant global supplies of fossil fuels. The Paris...

    4
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    Gavekal Research

    The Cure For Low Prices Is Low Prices

    What is the latest rout in commodity prices telling us? Certainly, China’s demand for many commodities is weak—but everyone knows this. The most important signal is rather on the supply side: low prices are finally pushing commodity producers to cut output. It is this restructuring that will eventually bring stability to commodity prices.

    0
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    Gavekal Research

    A Year-Defining Week

    Four hugely important events occurred last week which between them have largely determined the course of the world economy in the year ahead: the strong US payrolls, the Organization of the Petroleum Exporting Countries’ decision not to reduce production, the European Central Bank’s escalation of monetary stimulus and the inclusion of the renmimbi in the International Monetary Fund’s Special Drawing Rights basket. While all these events were...

    1
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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

    No Savior On The New Silk Road

    Over the last year China has stepped up its efforts to build an informal empire in Asia. This “One Belt, One Road” initiative has the potential to boost regional development and strengthen China’s geopolitical heft. But in the shorter term, can Beijing’s grand plan absorb China’s industrial overcapacity and revive commodity demand? Sadly, no.

    1
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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

    A Happy Apologist

    At Gavekal the conversation with clients never stops and from time to time we like to offer up a taste of debates that strike us as interesting. Louis got into just such a discussion earlier this week with one of our smarter, free-market embracing US clients. The topic of discussion was China and why Louis is such an apologist for the Chinese Communist Party when he clearly has little time for governments meddling with markets elsewhere?

    2
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    Gavekal Research

    The Limits Of Xi Jinping’s Grand Plan

    As China’s growth slowdown deepens, making even the government’s reduced growth target of 6.5% a year for the rest of this decade look less and less realistic, policymakers are increasingly pinning their hopes on Beijing’s much-touted “Belt and Road Initiative”. Not only do they hope that the plan to build new trading networks across Central Asia and the Indian Ocean will boost China’s flagging exports, but that the demand for commodities and...

    2
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    Gavekal Dragonomics

    The Chinese Dream (II): Great Leap Outward Along The New Silk Road

    The Belt-and-Road Initiative promises an infrastructure bonanza for Asia’s least-connected regions. How much it will extend China’s political influence is an open question.

    0
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    Gavekal Dragonomics

    The Chinese Dream (III): Should We Fear It?

    As a ‘peace-loving’ China flaunts its military, political and economic might, Asia and the US puzzle over how to respond.

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