Gavekal Research
January 21, 2022
Louis is convinced that the trend of higher energy prices, steeper yield curves and value stock outperformance is here to stay—at least until some major event comes along to change the story. Anatole, by contrast, continues to think that the inflation surge is about to be revealed as a scare and reckons that strong earnings growth will soon be driving a resurgence in growth stocks.
Gavekal Dragonomics
January 21, 2022
Since mid-2020, the renminbi has enjoyed its third major appreciation cycle of the last decade. This appreciation cycle is now coming to an end. But Wei argues in this piece that the depreciation that follows should be much less dramatic than after the last two cycles, thanks to structural changes in China’s international investment position.
Gavekal Research
January 21, 2022
I must say that I am amused. After years of brainwashing, the Federal Reserve has apparently convinced most market participants of two things: (i) it can fully control interest rates and (ii) it will never again raise interest rates.
Gavekal Research
January 3, 2022
Despite huge supply chain disruption, rising inflation and a more-hawkish-than-expected central bank, the S&P 500 index rose a whopping 27% last year and along the way suffered a maximum fall of -5%. Going into 2022, investors may conclude that US equities have hit “escape velocity” and nothing will spoil the rally.
Gavekal Research
December 16, 2021
Even as the Federal Reserve chairman went out of his way to sound hawkish on Wednesday, risk assets rallied. On the basis that truth often hides in plain sight, the most obvious explanation is that the Fed had well telegraphed an accelerated taper to its asset purchases from US$15bn a month to US$30bn.
Gavekal Research
December 13, 2021
Money sits at the heart of the economy and financial markets. At a time when inflation is taking off and the US Federal Reserve is starting to scale back its money printing, investors badly need a single reliable gauge of US money supply—not a dozen or more.
Gavekal Dragonomics
January 7, 2022
After a string of outbreaks, China’s Covid strategy is evolving. No longer aiming for zero cases, authorities are focused on quickly containing local outbreaks. This has mostly worked well, and travel will be less restricted over the Lunar New Year holiday. But the harsh lockdown in Xi’an shows what can go wrong if the virus gets out of hand.
Gavekal Research
December 1, 2021
Fear is stalking markets on concerns that the global economy could be hit by an Omicron Covid outbreak and the world’s central bank will not ride to the rescue. Comments by Jay Powell yesterday on a faster-than-planned taper to the Federal Reserve’s asset purchases added to the bad brew for risk assets.
Gavekal Research
November 29, 2021
Even before omicron showed up, European governments had reacted to high Covid case loads with demand-sapping limits on travel and social activity. In the US, by contrast, most Covid restrictions continue to be focused on what can be generalized as the economy’s supply side.
Gavekal Research
January 7, 2022
Violent protests triggered by rising energy prices have rocked Kazakhstan in recent days, prompting President Kassym-Jomart Tokayev to call in the Russian military in an attempt to restore control. Tom examines what the current unrest means for energy prices and the region’s power balance.
Gavekal Research
November 24, 2021
Media pundits were quick to dismiss Joe Biden’s release of oil from the US Strategic Petroleum Reserve as a failure Tuesday, on the grounds that the price of crude oil promptly rose by 4%. They were harsh.
Gavekal Research
October 6, 2021
Wherever you look, energy prices are shooting up, and shortages abound. The global economy, it seems, is in the grip of a full-blown energy crisis. Drill down, and it appears this is not one crisis, but many. The effects—worsening shortages and surging prices—are much the same in differentregions.
Gavekal Research
January 6, 2022
We are only six days into the year, but most investors must hope that the adage “as January goes, so goes the year” does not hold true for 2022. After all, the S&P 500 is down -1.4% and the Nasdaq has shed -3.5%. And behind this pullback in the broader indexes, pain in the more speculative parts of the market is starting to add up.
Gavekal Research
January 4, 2022
In various pieces over recent years, I have tried to show that most economic activity is nothing but energy transformed, and that economic value derives from "scarcity" or "efficiency". Further, US stock market returns can tell us a lot about "efficiency values" deployable in the future.
Gavekal Research
December 22, 2021
As we approach the end of 2021, two questions come to mind for next year: Will the US tighten in 2022, and if so, by how much? And will China ease policy in the face of its slowing economy, and if so, how? In addition to these two established founts of uncertainty, two new sources have reared their heads in recent days.
Gavekal Research
January 7, 2022
As investors reassessed the risk of central bank hawkishness, European equity markets took a hit on Thursday, with the MSCI EMU index falling -1.4% to wipe out almost all the gains made in the first three trading sessions of the year. The sell-off was not universal, however.
Gavekal Research
December 21, 2021
Europe is again being split along eastern and western lines. To the West, the European Central Bank is holding fast to its belief in the transitory inflation narrative, with Christine Lagarde barely acknowledging upside risks. Yet to the East, the CEE-3 countries—Hungary, the Czech Republic and Poland—are taking inflation as a serious threat.
Gavekal Research
December 17, 2021
On Wednesday, the Bank of England ended its expansionary £895bn asset buying program, only to raise its key interest rate by 15bp a day later. In contrast, the European Central Bank stuck to its cautious script, saying it would buy bonds through 2022 and beyond if necessary.
Gavekal Dragonomics
December 9, 2021
China is the largest market for wind power and the biggest producer of wind turbines. Yet turbines cannot easily be exported, and Chinese firms have found themselves mostly confined to the domestic market. In this report, Dan explains why China’s large presence in wind power development does not mean that it will be globally dominant.
Gavekal Dragonomics
Tilly Zhang
November 23, 2021
China’s drive for semiconductor sovereignty is entering a new phase, with government and industry converging on a dual strategy to reduce vulnerability to US sanctions. First, create a domestic supply chain for mature chip technology; second, invest in new technologies that could offer a different path to competing with leading-edge products.
Gavekal Dragonomics
November 19, 2021
The world needs more batteries, both to power electric vehicles and store electricity for green power grids. China is in a prime position to meet that demand as it already commands a large majority of both current and planned production capacity. It is therefore probable that Chinese firms will be commanding leading positions in a decade’s time.
Gavekal Research
January 5, 2022
China’s policymakers have given foreign investors in Chinese internet firms an unexpected gift: regulatory validation for the variable-interest entity, a corporate structure which allows firms to skirt a prohibition on foreign investment. Thomas explains that while regulatory uncertainty remains for restricted sectors, a key risk has been removed.
Gavekal Dragonomics
December 20, 2021
China announced a 5 bp cut to its one-year loan prime rate on Monday, the latest in a series of supportive measures enacted by officials to ease policy following China’s sharp slowdown in growth. In this Quick Take, Wei explains why future rate cuts are likely on the way, and why the cuts will be positive for Chinese bonds.
Gavekal Dragonomics
December 10, 2021
The People’s Bank of China raised its foreign-exchange reserve-requirement ratio for the second time this year, a clear signal to markets that it wants to cool down currency appreciation. Wei explains that that the central bank is less worried about speculative market action and more concerned that the renminbi is simply getting too strong.
Gavekal Research
December 15, 2021
India’s economy is normalizing but is still smaller than it was before the pandemic began. Looking forward, changes induced by the pandemic point to a continued uneven recovery. In this quarterly update, Udith and Tom assess what this environment means for Indian asset values at a point when the United States is tightening monetary conditions.
Gavekal Research
November 25, 2021
Last week saw India's prime minister Narendra Modi stun political friend and foe alike with a decision to repeal the laws that underpinned his flagship reform of India’s sclerotic agricultural sector. Udith argues that the likely losers from Modi’s U-turn will be the poor, as India’s structural growth prospects have just taken a big knock.
Gavekal Research
September 9, 2021
India is enduring a shaky, stop-start recovery. Headline GDP growth in the April-June quarter came in at a stellar 20%, but base effects are distorting the true picture. The biggest risk for investors, argue Udith and Tom, is an uncertain monetary environment.
Gavekal Research
January 7, 2022
As the Federal Reserve dials back its quantitative easing program, the US economy is back to relying on banks as the main agents of credit creation. And as US yields move higher, Will is convinced that large-cap bank stocks offer one of the best bets in the US market. In this video interview, he explains why.
Gavekal Research
December 17, 2021
US efforts to slow the development of China’s domestic semiconductor industry through export bans on US-origin technology has duly stymied its leading chipmakers. As a result, Beijing is working hard to achieve some form of technological self-sufficiency. In this interview, Gavekal Fathom China’s Tilly Zhang outlines two prongs of the effort.
Gavekal Research
December 10, 2021
With four months to go before France’s 2022 presidential election, the lion’s share of publicity has so far been captured by the populist rightCedric assesses whether a right-wing Euroskeptic could really capture the Elysée palace come April, to what extent polling gains by populist candidates icould destabilize Europe’s financial markets.
Gavekal Research
December 10, 2021
In early December, the US Treasury published its half-yearly report card on currency manipulation, in which it softened its criticism of offenders’ foreign exchange policies.
Gavekal Research
December 3, 2021
A year after a handful of auto manufacturers first began to complain about difficulties sourcing integrated circuits from component suppliers, the global semiconductor shortage has broadened to affect the sales outlook of high-end industry segments—such as premium smartphones—that until recently have remained largely immune.
Gavekal Research
November 26, 2021
Whenever a currency crisis engulfs an emerging economy, investors nervously look around for the next shoe to drop.
Gavekal Research
October 1, 2021
Thursday saw UK GDP growth for 2Q21 revised up to a perky 5.5% from a previous 4.8%. Yet all is not well in shortage-plagued Britain. While other economies facesupply chain disruption and energy shortages, the “just in time” UK economy looks to be facing a perfect inflationary storm that could deliver a recession in 2022.
Gavekal Research
September 10, 2021
For decades, urban England has had an under-supplied and over-bought housing market. UK governments of all political stripes have tried and failed to unblock building pipelines. Britain is hardly alone in having seen home prices rocket due to pandemic effects, but there was a grim inevitability to UK home prices rising 13% in the last year.
Gavekal Research
August 25, 2021
On Monday, the International Monetary Fund began disbursing a record US$650bn of its hard currency-like reserve asset to aid stressed sovereign borrowers. Since the plan was first officially mooted in March, financing costs have fallen sharply in frontier economies.
Gavekal Research
December 7, 2021
In our recent live-streamed seminar in Beijing, Anatole presented his case for why markets are right not to panic about high headline inflation numbers. Louis cast doubt on claims that this current bout of inflation is transitory. Arthur and members of the Dragonomics team presented on China's economy, policy goals and asset markets.
Gavekal Research
December 3, 2021
As winter sets in, Europe seems beset with uncertainties: around Covid, energy prices and inflation. Anatole Kaletsky, Cedric Gemehl and Nick Andrews weigh these and other forces that will be at work in 2022 to assess the outlook for Europe’s economy and markets in the new year.
Gavekal Research
December 2, 2021
As 2021 draws to a close, economies and markets are once again beset by uncertainty. But looking beyond the immediate short term, there are reasons for cautious optimism about the eurozone’s economic performance in 2022, although investors are advised to assume a defensive stance.
Gavekal Dragonomics
December 15, 2021
Chinese economic data stabilized in November as exports strengthened and the deep declines in property showed signs of narrowing—a welcome respite from the sharp drops in September and October. Even so, the sector is stabilizing at a low level rather than rebounding to previous highs, underscoring the need for continued policy support.
Gavekal Dragonomics
November 30, 2021
With a downturn in property intensifying China’s economic slowdown, hopes are rising that a pickup in infrastructure investment will help stabilize growth in 2022. But as Wei argues in this piece, the property downturn is becoming a major drag on local-government finances, which will limit their ability to boost public works spending.
Gavekal Dragonomics
November 15, 2021
The downturn in China’s property sector remains a major headwind for the country’s economic momentum. In this Quick Take, the Dragonomics team explains that although the downturn in China’s property sector will continue to weigh on growth, officials are showing no signs of easing up on restrictions.
Gavekal Research
November 23, 2012
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.
Gavekal Research
July 20, 2011
In A Study of History, Toynbee explains that 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.
Gavekal Research
February 28, 2011
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’.