Gavekal Dragonomics
July 17, 2019
The takeover of Baoshang Bank in May was China’s biggest bank failure in at least a decade. But the People’s Bank of China managed the ensuing market jitters well, once again proving itself to be an effective financial firefighter. Still, Baoshang’s failure does confirm that the era of rapid, unregulated growth for China’s smaller banks is over.
Gavekal Research
July 17, 2019
Technocrats globally are under the cosh from populist politicians who have tired of doing the sensible thing. In the developed world, checks and balances have insulated most big agencies, but the story is different in developing economies. The worry is that they are lurching off onto a development track that ends with fiscal blowouts and currency debasement.
Gavekal Research
July 16, 2019
The UK has long run a large goods trade deficit with its main trading partners. However, Charles argues that this ”deficit” should really be seen as two different deficits; one is with the world excluding the eurozone, and the other with the eurozone itself. Splitting them makes sense as they have different origins and react to different forces.
Gavekal Research
July 9, 2019
Last July Charles wrote a piece warning of a recession in the non-US OECD economies during 2019. Today, he runs an update on that thesis and seeks to refine his safety-first portfolio using assets which contain “anti-fragile” properties.
Gavekal Research
June 26, 2019
After the opening Twitter salvo in "Trade War II" by Donald Trump in May, markets have reacted quite differently from "Trade War I" in the spring of 2018. This time, the Federal Reserve is sounding more dovish, US bond yields have fallen back to 2%, the dollar seems to be rolling over, and gold and EMs are doing well.
Gavekal Research
June 19, 2019
Earlier this year, Louis and Charles published a book whose main thesis was that an era of globalization is ending and the world is breaking into three separate economic zones.The question Louis addresses in this piece is how investors should play this macro shift.
Gavekal Research
June 27, 2019
It is now almost certain that presidents Donald Trump and Xi Jinping will restart trade talks at the G20 summit in Osaka this weekend. Moreover, discussions in Washington suggest that there is a good chance these talks will result in a deal in the next few months. Our core scenario now is that macro risk from an escalating trade war is receding.
Gavekal Research
June 21, 2019
Next week’s big event will be the G-20 leaders’ meeting in Osaka, where presidents Donald Trump and Xi Jinping will sit down to figure out whether their stalled trade negotiations can be re-started. It is quite likely that trade talks will get back on track, but quite unlikely that a deal can actually be struck before the end of the year.
Gavekal Dragonomics
June 4, 2019
The collapse of US-China trade talks and the ratcheting up of tariffs has intensified the challenges faced by global companies with operations that span both countries. In this piece, Lance reports on their range of responses to the trade war: some are shifting out of China, some are investing more in China, and some are not doing anything yet.
Gavekal Research
July 11, 2019
In Congressional testimony on Wednesday, Jay Powell cooed just like the dove investors want him to be. The Fed chairman dispelled any lingering doubts that either the end-June trade truce between the US and China or June’s strong US payrolls number will dissuade the Fed from cutting interest rates at the end of July.
Gavekal Research
July 5, 2019
The US dollar’s strength over the last year or so has been attributed in large part to expectations that the US administration would impose additional tariffs on imports from China. So, with those expectations on hold following last week’s agreement to resume trade negotiations, you might think the US dollar should be falling.
Gavekal Research
July 1, 2019
After the de-escalation of the US-China economic cold war at the weekend’s G20 summit in Osaka, all eyes are now on the US Federal Reserve, following policymakers’ recent indications that they are ready to cut interest rates.
Gavekal Research
July 3, 2019
After three days of intense maneuver and counter-maneuver, on Tuesday the European Union’s heads of government announced their choice of names to lead the EU’s central institutions for the coming years. The result is a remarkable clean sweep for the favored candidates of French president Emmanuel Macron.
Gavekal Research
June 18, 2019
At the ECB's annual shindig in Portugal this week, two questions matter. Given negative interest rates and capital key constraints over asset purchases, how does the ECB fight the next downturn? And who will replace Mario Draghi?
Gavekal Research
May 27, 2019
For anyone who did not grow up in a Commonwealth country, one of the most perplexing things about the game of cricket is that matches can last for as long as five days, and at the end of it all still end up in a draw.
Gavekal Dragonomics
July 5, 2019
As China and the US restart their trade talks, negotiators face a daunting list of issues to resolve. One of the stumbling blocks is the US allegation of “forced technology transfer.” In this piece, Dan explains what China is doing to address the problem, how that might not be enough—and why forced transfers of technology don’t even always work.
Gavekal Dragonomics
June 17, 2019
It is easy to forget that the US trade war with China is founded on the issue of intellectual property—and to miss the fact that, despite the breakdown in trade talks, China is pushing through many legal changes to improve IP protection. But as Dan explains, while the technical improvements are real, so is political pressure on the legal system.
Gavekal Dragonomics
June 4, 2019
The collapse of US-China trade talks and the ratcheting up of tariffs has intensified the challenges faced by global companies with operations that span both countries. In this piece, Lance reports on their range of responses to the trade war: some are shifting out of China, some are investing more in China, and some are not doing anything yet.
Gavekal Dragonomics
July 9, 2019
China’s auto market is still locked in the worst downturn in its history. In this report, Ernan explains how the government’s rushed transition to new vehicle-emissions standards worsened that downturn, and why it hasn’t reversed course. Though an end-year recovery for auto sales is still likely, 2019 will be a second bad year for the industry.
Gavekal Dragonomics
July 3, 2019
Housing policy in China has taken a cautious turn, with policymakers more concerned about potential overheating in prices than worried about a downturn in sales and construction. In this piece, Rosealea explains how this shift is playing out through cuts in housing subsidies and changes to local policies, and evaluates the risks to the market.
Gavekal Dragonomics
July 1, 2019
It was a rocky second quarter for China, with trade tensions escalating and then easing, and domestic growth disappointing. In his latest chartbook, Chen Long assesses the current lay of the land. The growth slowdown is not over yet as macro policy has stayed relatively cautious, but easing trade tensions should boost equities and the currency.
Gavekal Research
July 11, 2019
France is bucking the downturn in European—and global—industry. In May, French industrial production confounded expectations by rising an impressive 4% year-on-year. And crucially, French industry is creating jobs again after a brutal 17-year contraction. Cedric examines the reasons for France’s industrial health.
Gavekal Research
July 4, 2019
Recently I made my usual remark to a European client about the stupidity of negative interest rates. My host told me a sobering story. He manages a pension fund and received a call by a regulator who said funds shouldn't hold too much cash because it's risky.
Gavekal Research
July 3, 2019
The yield on 10-year BTPs has fallen below 2% for the first time since Italy’s populist government took office, yet investors continue to demand high premiums to hold Italian debt.
Gavekal Research
June 25, 2019
Of the many risks besetting investors right now, the hardest to assess is the confrontation between the US and Iran. Should tensions escalate into a shooting war, the consequences would be far-reaching and severe.
Gavekal Research
May 24, 2019
Angry rhetoric between the US and Iran reached blood-curdling intensity after the US announced in late April that it wouldn't grant waivers for sanctions on Iran's oil exports. While this caused a short term spike in the oil price, it has since fallen about -8% from its high.
Gavekal Research
May 17, 2019
As if the macroeconomic impact of a full-blown US-China trade war weren’t enough to worry about, over the last couple of weeks investors have also had to contemplate the risk of a real shooting war between the US and Iran, the effect it would have on the price of oil and the threat that would pose to a fragile global economy and jittery world marke
Gavekal Research
June 14, 2019
After the victory party, Narendra Modi’s reelected government's focus is shifting to structural reform, but Udith and Tom have fairly low expectations that this will materialize anytime soon and hold a cautious view on Indian risk assets. Such an environment should offer a reasonable outlook for government bonds.
Gavekal Research
May 24, 2019
After Narendra Modi’s landslide victory in India’s general election, the economic issues that must be tackled quickly are stacking up. Tom runs through the Indian leader’s inbox and concludes that the scale of the short term problems he faces rules out a 2014-style euphoric run-up in Indian equity.
Gavekal Research
February 28, 2019
India and Pakistan engaged in air-to-air combat yesterday, raising the prospect of war between the two nuclear powers. Markets fell only marginally but are vulnerable if the conflict escalates, which for the moment looks unlikely.
Gavekal Research
July 5, 2019
Facebook will have an uphill battle trying to convince consumers to adopt its announced digital currency, libra. As it will be backed by a basket of assets denominated in different currencies, the prices of goods and services will be more volatile in libra than in existing local currencies, even in emerging markets.
Gavekal Dragonomics
June 28, 2019
Chinese equity markets are up around 26% for the year. Yet there has been no recovery in earnings growth, and the trade war and shaky domestic economic momentum continue to loom. The reason for the market optimism is expectations of supportive government policies, whether or not those expectations are valid.
Gavekal Research
June 21, 2019
Even if Presidents Donald Trump and Xi Jinping leave the G-20 meeting in Osaka next week with a trade deal in hand, the broader rivalry will continue. In this extensive video interview Louis identifies three ways in which China is vulnerable to US pressure and explains how this may impact investors.
Gavekal Research
May 22, 2019
When something unexpected happens and the market moves against you, it is usually best to cut your losses. But sometimes it is worth indulging the contrarian instinct. This month most of the pound's gains in the first quarter have been given up and sterling’s position looks dicey. But sterling bulls should not cut their losses.
Gavekal Research
April 11, 2019
The latest act of the Brexit tragicomedy has played as expected—and market reactions should follow, as the risk premium on sterling and UK assets is substantially reduced.
Gavekal Research
April 8, 2019
With the Brexit deadline in the rear view mirror, Britain's leave voters have are left with the impression that they have been taken for a ride by the UK’s political class, and in particular by their representatives in parliament. So who is the real sovereign power in the UK? The people or parliament? Charles sees three possible outcomes.
Gavekal Research
July 12, 2019
Investors have been cheered by the US and China deescalating a trade dispute that has focused on China’s use of US technology. So what to make of a stand-off between two US allies in North Asia that could disrupt highly integrated technology supply chains?
Gavekal Research
July 9, 2019
Emerging markets did nicely out of the rumor, less well from the fact. As hopes grew through June for some form of trade détente between the US and China, EM assets staged a broad rally. Similarly, EM currencies pushed broadly higher, on the back of a wider US dollar softness.
Gavekal Research
July 4, 2019
Vietnam has the potential to be a big winner from the US-China trade war as companies move manufacturing out of an increasingly high-cost China. This trend can be seen in sharply rising foreign investment and fully occupied export-focused industrial parks.
Gavekal Research
July 12, 2019
In yesterday’s Gavekal Research conference call, Louis-Vincent Gave, Anatole Kaletsky and Arthur Kroeber conducted a mid-year review of the investment environment and outlined their expectations for the rest of the year onward.
Gavekal Research
July 2, 2019
Record-high US equity prices seem hard to reconcile with the message sent by the lowest bond yields since 2016. Should investors hunker down due to the inverted yield curve, or jump aboard the equity bandwagon? In fact, both markets may be right in their own way.
Gavekal Research
June 14, 2019
After the victory party, Narendra Modi’s reelected government's focus is shifting to structural reform, but Udith and Tom have fairly low expectations that this will materialize anytime soon and hold a cautious view on Indian risk assets. Such an environment should offer a reasonable outlook for government bonds.
Gavekal Dragonomics
July 3, 2019
Housing policy in China has taken a cautious turn, with policymakers more concerned about potential overheating in prices than worried about a downturn in sales and construction. In this piece, Rosealea explains how this shift is playing out through cuts in housing subsidies and changes to local policies, and evaluates the risks to the market.
Gavekal Dragonomics
May 23, 2019
The rapid rise in China’s household debt has become a major concern for markets and policymakers. While most analysis looks at the household debt-to-GDP ratio, in this report Ernan calculates the household debt service ratio for a better angle on the problem. She finds that the debt burden on household budgets will keep increasing in 2019.
Gavekal Dragonomics
April 25, 2019
China’s property market data has been surprising on the upside. Thanks to easier credit and looser administrative restrictions, sales volumes picked up in March and prices rose. In this paper, Rosealea examines whether the upturn can last, and assesses what it means for land sales, construction activity, materials prices and the broader economy.
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’.