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E.g., 22-09-2018
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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.

    4
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    Gavekal Research

    The Limits Of Magical Thinking

    A persistent American fantasy of hardliners is that threats of force will magically cause other countries to abandon their interests and cave in to US demands. The current occupant of the White House is taking this magical thinking to new heights in his approach to Asia. But thankfully, despite the dire headlines, the real-world impact is small.

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    Gavekal Research

    Finding Outperformance In Japan

    On Monday, the cabinet office in Tokyo is expected to announce that Japan’s economy grew at an annualized rate of around 2.5% in the second quarter. If it does, it will mark Japan’s sixth consecutive quarter of economic expansion, the longest period of uninterrupted growth since the mid-2000s, when prime minister Junichiro Koizumi was in power.

    0
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    Gavekal Research

    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.

    0
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    Gavekal Research

    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...

    0
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    Gavekal Research

    Big Tech Is Not Standard Oil

    Back in May, Louis warned that the regulatory knives were coming out for Big Tech. In the worst case scenario for the dominant technology giants that have done so much to drive the stock market to new highs, Louis argued that they could even face the same treatment that Standard Oil received at the hands of the US government in 1911. Investors were forcibly reminded of this tightening regulatory squeeze yesterday when Google parent Alphabet...

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    Gavekal Research

    Life’s Certainties And The Euro

    There are very few certainties in life. Death, taxes, US consumers living beyond their means, and Italian central bankers talking down their currency are pretty much the only things I have learnt in my career to be inevitable. Sure enough, Mario Draghi came out yesterday doing his best to sound as dovish as he possibly could. That did not stop the euro from surging past its ceiling of US$1.15 to reach US$1.1620.

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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

    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.

    0
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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

    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

    Video: The North Korea Conundrum

    In this brief video interview Yanmei Xie outlines the ever-shrinking list of options the US has for solving the problem of a nuclear-armed North Korea. The risk of military action remains slim, but with North Korea's recent test of an intercontinental ballistic missile it is no longer unthinkable.

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    Gavekal Research

    The North Korean Tail Risk Just Got A Whole Lot Fatter

    Despite the protestations of some of the less temperate US news media, North Korea did not cross a US “red line” yesterday. However, with the successful test launch of an intercontinental ballistic missile that could, in theory, drop a nuclear warhead on the US state of Alaska, Kim Jong Un’s rogue state has brought North Asia a big step closer to the critical point at which investors can no longer rule out military action. A shooting war on the...

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    Gavekal Research

    Should Investors Chase Defense Stocks?

    Aside from health care, the other “Trump trade” that has worked wonders since November 9 has been defense stocks. After all, with the Dow Jones sector index up some 22% in the period, what’s not to like? On taking office, Donald Trump cranked up military spending, and during his state visit to Saudi Arabia in May secured weapon sales worth US$110bn. On Friday—just hours before Xi Jinping took the stage in Hong Kong to celebrate the 20th...

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    Gavekal Research

    The Indian Summer

    Tomorrow India will roll out its most important economic reform since the early 1990s. The Goods and Services Tax will transform the country’s 29 states, which run semi-autonomous fiscal systems, into a single market. Backed by strong fundamentals, Modi’s reform agenda is playing well with investors: MSCI India is up 19% this year, foreigners are piling into Indian bonds, and FDI is at record levels. Yet, look closer and a weaker economy emerges...

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    Gavekal Research

    When Central Bankers Attempt To Change Direction

    In recent days , central bankers in the US and Europe have been signaling how much they want to end unconventional monetary policies and revert to a more normal monetary model that does not put asset prices at the heart of the system. It is a laudable aim. But, warns Charles in this piece, central bankers have seldom managed to transition from one monetary regime to another without causing convulsions in the financial markets. This time, the...

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    Gavekal Research

    A Change In The Investment Environment?

    A couple of weeks ago, Louis asked if the downside breakout in bond yields (touching 2.10%) could foster a stable investment environment. At the time he foresaw three possible scenarios. After yesterday's hawkish pronouncements by multiple central banks, he is not so sure and is focusing on a narrower range of possibilities which may herald a new investment environment.

    0
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    Gavekal Research

    Video: Breaking The Yen-Equity Link

    Japanese equities recently touched a 17-year high in US dollar terms and perhaps more significantly, they appear to have decoupled from their usually tight inverse relationship with the yen. In this video interview Neil considers both cyclical and structural reasons for the apparent breakout and concludes that investors should not underweight a market that has plenty of tailwinds.

    0
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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

    Figuring Out Where The Ball Will Be

    Rugby players fall into one of two categories: the forwards, who typically go where the ball is (and in the process put their heads in places most sane people wouldn’t put their feet), and the backs, who try to go where the ball will be, which enables them to look good and keep their kit clean, but earns them the scorn of the forwards. Peter FitzSimons, the first Aussie to play for a French club (Brive), once remarked: “Come the revolution, the...

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