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A Poor April Fool's

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A Poor April Fool's

Louis-Vincent Gave
1 Apr 2025
The Paris courts have chosen to make a favorite for the 2027 French presidential election, Marine Le Pen, ineligible for the race. The use of lawfare seems to have claimed another victim, says Louis. Le Pen will appeal both the verdict and sentence, but the wheels of justice turn slowly in France. This leaves Le Pen and Rassemblement National with two choices.
A Backdoor Bailout For State Developers

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A Backdoor Bailout For State Developers

Xiaoxi Zhang
1 Apr 2025
China’s central government has pledged two major initiatives to support the property market: encouraging local governments to purchase vacant land from property developers, as well as unused housing inventories. Now local governments are moving forward with the land buybacks, which Xiaoxi argues will provide a backdoor bailout to their state-owned developers.

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A New Economic Logos

Charles Gave
31 Mar 2025
The ascent of Donald Trump heralds a radical change in the US’s political logos, which has essentially seen the right win the culture war, says Charles. In the domain of economics, the situation is far less clear cut, and the post-World War II settlement will be harder to shift. That battle has now begun in earnest and in this piece, Charles outlines a framework for measuring the struggle between the incumbents and the insurgents.

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The Unfolding Bear Steepener

Louis-Vincent Gave
31 Mar 2025
More than anything, business leaders crave predictability. Uncertainty surrounding tariffs, regulations, and fiscal and monetary policies usually cause hiring and capital spending decisions to be postponed. Yet, interestingly, and in spite of softer economic data, long-dated treasury yields have inched higher in March, while those at the short end have either flat-lined or dipped. Louis examines potential explanations for this move.

The global view

The Unfolding Bear Steepener
More than anything, business leaders crave predictability. Uncertainty surrounding tariffs, regulations, and fiscal and monetary policies usually cause hiring and capital spending decisions to be postponed. Yet, interestingly, and in spite of softer economic data, long-dated treasury yields have inched higher in March, while those at the short end have either flat-lined or dipped. Louis examines potential explanations for this move.
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Financial Versus Operational Leverage
Bull markets are either driven by increasing “operational leverage,” usually because of the application of technology, or by the expansion of “financial leverage,” usually concomitant with growing bank balance sheets. Interestingly this year, financials have started to outperform tech stocks. Is this a sign that the world may be shifting from a bull market led by improving operational leverage to one propelled by growing financial leverage?
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Asia’s Coming Deflationary Boom
Increasingly able to pay for energy in their own currencies, Asian countries no longer need to accumulate US dollar reserves. This means they no longer need to undervalue their currencies, which points to the development of an epic deflationary boom in Asia. Investors should overweight long-duration assets in the region and prepare for a prized triple merit scenario, writes Charles.
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Around The World Of Policy Goals
History is on the move once more, with old certainties and old alliances having to be rethought. That is forcing policymakers in national capitals to focus on their underlying national interests and ask hard questions about their current policy setup. Louis conducts a review of the changing drivers impacting France, Germany, Great Britain, the United States, Russia, India and China in a bid to identify the direction that all may take in the coming period.
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Test Your Knowledge
Today an ETF will list on the New York Stock Exchange that is the first to invest in a certain type of asset. What type of asset?
  1. Catastrophe bonds
  2. Intellectual properties
  3. Lego sets
  4. Fine wine
  5. Private equity and credit
Post Your Answer

Chart of the Week

Week 14, 2025
The increase in the relative valuation between US and European equities, as measured by the forward 12-month P/E ratio, can be divided into three phases. The first, 2016-2021, saw relative US stock valuations steadily rise, while remaining within the historical range established since 2003. The second phase, 2022-2024, was characterized by a rise in relative valuation that exceeded the established range and accelerated rapidly. This year we have witnessed a sharp decline in the relative valuation of US stocks—a third phase, which is also evident when normalized for sector and style. The question now is whether this decline will continue.
Open Chart

Gavekal Research

Essential Reading: A Book For Every Week Of The Year

Gavekal is often asked for a recommended reading list. So, here it is: a book a week that everyone interested in the world of macro investing—whether hoary veteran or eager apprentice—can benefit from reading.

US economy & markets

Stagflation Or Reflation?
With President Donald Trump adding new import tariffs by the day, is the US set to see slowing growth, rising unemployment and high inflation? At Gavekal, we call this stagflationary brew an inflationary bust. Although the risk of stagflation has risen since January, Will thinks the more likely outcome is reflation, or in other words an inflationary boom.
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The Future Of Fannie And Freddie
The US administration is lining up government-backed mortgage giants Fannie Mae and Freddie Mac for potential privatization. They could lose their government guarantees and face resulting ratings downgrades, potentially inflicting mark-to-market losses on holders off mortgage-backed securities and push up mortgage rates. However, any broader economic fallout for residential property prices or US growth will be small.
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A Race To The Bottom? Not So Fast
As Donald Trump’s trade “liberation day” approaches, observers are increasingly wondering whether the escalating tariff war could cause a US, or even global, recession. The answer is that the prospect of an all-out trade conflict does increase the probability of recession both in the US and abroad. But for now, recession should not be investors’ base case.
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Bowman, Bessent And US Banks
Monday’s nomination of Michelle Bowman, a well-known advocate of lighter-touch banking regulation, for the role of Federal Reserve Vice Chair for Supervision, will have an impact on several fronts. Kai Xian argues that the shares of banks and their borrowers are likely to benefit.
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Webinar: Good But Not Great In India

Udith Sikand, Tom Miller
19 Mar 2025
Having been stuck in a funk over the last year, India’s economy is showing signs of perking up. Yet investors continue to fret about the effects of US tariffs and increasingly see better opportunities in China’s cheaper equity market. In this webinar, Udith and Tom seek to disentangle these factors and offer views on whether this is the time to be playing India.

Emerging markets

Video: Are EMs Back?
It’s been a good quarter for the broad emerging markets complex. The MSCI EM index has returned almost 7% in US dollar terms, while US equities are down by some -3.5%. So should investors jump on the EM train? Udith points out that there is a wide divergence in the performance of individual emerging markets, and the threat of tariffs hangs heavy over EM corporate earnings. Investors need to be selective.
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Video: Southeast Asia Under Trump 2.0
Global investors are rightly focused on the potential losers from the United States pursuing an aggressively protectionist trade policy agenda, but there may be winners as well. Tom went in search of such economies last week. Today he explains how such “swing states” are likely to perform in an intensified period of great power rivalry between the US and China.
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China Turbocharges EM Investment
As the rich world pulls up the protectionist drawbridge, investors risk missing a bigger story in emerging markets. Here, Chinese outbound investment is rebounding after the fallow Covid years, and is driving a new wave of industrialization that promises to lower the cost of the green-energy transition.
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Why This Time Has Been Different
During past episodes of risk-off volatility, the correlation between emerging market risk assets has shot up. But early August’s bout of market volatility saw a bifurcation in EMs, and no broader macroeconomic spillover effects—which speaks well of the growing maturity of emerging markets as an asset class.
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Latest video

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Video: Which Way After Gold's Big Rally?

Louis-Vincent Gave
26 Mar 2025
As other formerly hot asset classes have rolled over, gold has continued to advance through February and March, setting a new record high above US$3,050/oz. In this video, Gavekal founding partner Louis-Vincent Gave examines the fundamental drivers of gold’s rally, considers the metal’s valuation, and asks whether the run-up can continue.

Middle East

China On The Nile
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Video: After Gaza, Grand Plans
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Syria, Russia And Energy Dominance
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The Syrian Revolution
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Conversation: What Could Derail The Inflationary Boom
Hedging The Inflationary Bust
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India chartbook

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India Macro Update: The Road To Recovery

Udith Sikand, Tom Miller
7 Mar 2025
After slowing for four consecutive quarters, India’s economy is showing signs of perking up. GDP growth is back above 6%, buoyed by a monetary policy easing and healthy household consumption. Tax cuts will also help at the margin. But a dramatic acceleration in growth is unlikely, as the public infrastructure boom fades and private investment continues to disappoint.

China chartbook

Gavekal Dragonomics

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Macro Update: Tending The Green Shoots

Andrew Batson, Dragonomics Team
31 Jan 2025
After China’s pivot to stimulus in late September, green shoots have appeared across the economy, with property sales bouncing, consumption improving and deflation easing. But the turn in growth is tentative and markets are still unconvinced: the green shoots need more tending from government policy support. In our latest quarterly chartbook, Andrew and the Dragonomics team assess the prospects for 2025.

Europe's economy

A UK Fiscal U-Turn Is Inevitable
Rachel Reeves' mini-budget was just the latest in a long series of unforced errors which has seen the UK slide down the G7’s performance table. Adherence to a set of arbitrary and inappropriate fiscal rules is weighing on growth to such an extent, it is inevitable the government will abandon its current fiscal blueprint within the next 12 months. While politically traumatic, this U-turn could provide the economic shot in the arm the UK so badly needs.
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The Other Reason To Like Europe
The handsome year-to-date outperformance of European equities has been driven largely by expectations of a growth-stimulating fiscal expansion from eurozone governments, led by the incoming German coalition. But fiscal easing is only part of the story. The eurozone bank lending cycle is also turning up. In Europe’s heavily bank-dependent economy, this upswing is set to prove a key driver of regional economic growth over the medium term.
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The Pieces Fall Into Place For European Reflation
The transatlantic trade conflict is escalating, with the EU bracing for the US imposition of “reciprocal” tariffs that could severely dent Europe’s goods exports to the US, one of the EU’s strongest sources of growth in recent years. The good news for Europe is that while a tariff war with the US will be unambiguously negative for the EU economy, the damage will be outweighed by the stimulative effect of increased fiscal spending.
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Germany’s Good Debt Dynamics
Germany’s embrace of fiscal stimulus as a spur for national renewal is raising concerns about its creditworthiness. The economic establishment is worried that bunds will lose their safe-haven status, whereas credit rating agencies reckon the plan will support Germany’s triple-A rating, as it should help revive a stagnant economy. Cedric looks at the German credit question through the lens of the classic debt dynamic equation to try and find answers.
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Strategy Chartbook

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US Strategy: Towards A Tighter Labor Market

Tan Kai Xian
21 Jan 2025
On day one of Donald Trump’s administration, executive orders flowed to constrain immigration into the US. Follow-up measures may further limit the supply of workers. The US labor market has cooled off from its red-hot level seen after the pandemic. The result has been an easing-up of wage growth that has allowed US inflation to fall toward the Federal Reserve’s target. This somewhat stable equilibrium is, however, unlikely to last long.

Equities

The Interregnum Ends
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As January Goes, So Goes The Year?
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Four Known Unknowns In The Year Ahead
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Navigating The New Year Volatility
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Building Narratives Around Obvious Outliers
And The 2024 Awards Go To…
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Currencies

Buy On Rumor, Sell On Tariffs
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The Long Shadow Of A Currency Accord
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Revaluing US Gold
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Odd One Out: Has The Yen Bottomed?
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Trump, US Exceptionalism And The US$
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Building Narratives Around Obvious Outliers

Fixed income

Asia’s Coming Deflationary Boom
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Regime Change In The Eurozone Bond Market
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The BoJ’s Dangerous Confidence
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Four Known Unknowns In The Year Ahead
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Building Narratives Around Obvious Outliers
And The 2024 Awards Go To…
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Oil & commodities

Geoeconomic Monitor: The Tariff Power-Play
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What We Don’t Talk About When We Talk About Ukraine
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The Upside Surprise In Commodity Demand
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The Trouble With Energy Dominance
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Video: Why Now For Russian Oil Sanctions?
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Building Narratives Around Obvious Outliers

China tech

The Next Big Fund
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What DeepSeek Means For China’s AI
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Video: The DeepSeek Leap
Another Sputnik Moment
Biden’s Last Salvo Of Tech Protectionism
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China’s Export Controls Send A Serious Signal
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Then Yen Carry Trade Unwinds

Video: The Yen Carry Trade And Emerging Markets
Usually when developed market volatility spikes, the world’s emerging markets fall victim to collateral damage. Things have been less simple this time around. Although Latin American currencies, especially the Mexican peso, have been hit hard by the unwinding of the yen carry trade, East Asian currencies have risen strongly. Udith Sikand explores what lies behind the divergence.
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More Questions Than Answers
It’s a dedicated Frenchman who consents to work in August. But the financial market volatility of the last week has seen Louis hard at it, fielding client questions about the outlook for global markets and economies. In this paper, he sets out the most salient questions, and offers his answers.
The Root Cause Of Summer Ructions
Investors are no longer seeing virtue in a Goldilocks scenario of moderating demand and easing price pressures, but having a summer freak-out over faltering global growth. Udith and Kai Xian diagnose the market jitters and say that the sell-off in high-yield currencies and tech stocks likely stems from movements in Japan rather than disappointing US economic data.
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The Yen And Deindustrialization
There is a theory out there which holds that the extreme undervaluation of the yen is a consequence of Japanese deindustrialization, as Japan Inc. has shipped its factories abroad, pushing Japan's economy into an irreversible trade deficit even while it continues to run a monster current account surplus. Not so fast, says Charles, whose analysis of Japan’s external balances throws up a different explanation—and suggests a compelling investment opportunity.
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From the archives: oldies but goodies

Deficit Deniers Of The World Unite
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Deficit Deniers Of The World Unite

Anatole Kaletsky
In our politically correct age the pressure to bow down before certain popularly accepted and apparently proven “truths” can be overwhelming. In the aftermath of the US elections, two such nostrums are unnecessarily vexing investors—the urgency of deficit reduction and fear of higher taxes. I believe that both of these obsessions will soon be forgotten.
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Are We Entering into Revolutionary Times?
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Are We Entering into Revolutionary Times?

Louis-Vincent Gave
The role of a society’s elite is to rise to the challenges of the times, and find solutions fitting to those times, even if this involves a radical break with the past. But the modus operandi for most leaders is to try and maintain the status quo. But if the problems are large enough, this does not work, and the same challenges reappear until either a solution is found, the elite is replaced by a new elite, or the country, system or civilization disappears.
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The High Cost Of Free Money
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The High Cost Of Free Money

Charles Gave
Perhaps the most famous economic law is the one that there is no such thing as a free lunch. By keeping US short rates at abnormally low levels beyond the financial crisis and as growth bounces back beyond the dreams of the wildest optimists, the Fed increasingly seems to be trying to ‘feed the US economy for nothing’. This is worrying, for extended periods of cheap money typically come back with a hefty price tag.
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