Gavekal Research
June 22, 2018
When this week US president Donald Trump threatened to slap tariffs on an additional US$200bn of imports from China, on top of the US$50bn already targeted, the Chinese government immediately promised to retaliate in full proportion. The trouble is that retaliating will be a lot more difficult and painful than Beijing’s counter-threats make it sound.
Gavekal Research
Armando Castelar
June 22, 2018
After a couple of years of political stability and economic improvement, Brazil again looks like an emerging market in the cross-hairs. As measures of financial stress have risen sharply, its currency and stock market have plunged. The bet must be that Brazil muddles through, but a crisis this year cannot be ruled out.
Gavekal Research
June 21, 2018
The interaction of three prices—the US dollar, long-dated US interest rates, and oil—tend to determine the behavior of most other asset values, and so far this year, all three have moved higher. Investors have adjusted to this new reality with some trepidation: among major markets, only the US (S&P 500) and Japan (Nikkei 225, barely) are up year-to-date in US dollar terms.
Gavekal Research
June 6, 2018
In recent weeks, investors have been hit with multiple political shocks in the shape of Italian politics, American trade policy and global oil shenanigans.
Gavekal Research
June 6, 2018
Bears are stealthy creatures that rarely offer much warning of their arrival. Based on my experience in the financial wilderness, I have rarely recognized the clear manifestation of a bear market until I was caught firmly in its clutches.
Gavekal Research
June 4, 2018
At the beginning of 2018, one of Gavekal’s big themes for the coming year was that the liquidity environment was deteriorating. Behind this we saw three causes: 1) the US Federal Reserve’s decision to shrink its balance sheet; 2) the growing toll of rising energy prices, and 3) the coming liquidity drain from runaway US government spending.
Gavekal Research
June 18, 2018
With the imposition of tariffs on US$34bn of imports from China last Friday, the US has expanded the trade war it launched two weeks earlier with steel and aluminum tariffs, mostly on friendly countries.
Gavekal Research
June 5, 2018
I have previously argued that Trump Administration trade policy—and specifically policy on China—should be understood as a volatile reaction among four forces: the president, the trade warriors, the national security hawks, and the business community.
Gavekal Dragonomics
May 9, 2018
It is still possible that the US and China will strike a deal to avert threatened tariffs. But as Arthur argues in this piece, any deal will be mostly cosmetic. The tension between the two is not mainly about trade, but about China’s challenge to US global dominance. The US will almost certainly keep trying to counter China’s efforts to gain power.
Gavekal Research
May 8, 2018
A decade ago the US corporate bond market was about half as big as it is today, yet bond dealers held about six times more inventory than they do today. In our latest Loser Report which focuses on assets to avoid, Louis worries that the next big financial accident could happen in this aggressively priced arena.
Gavekal Research
March 19, 2018
Our regular Loser Reports are based on the premise that good money management can be as much about “avoiding losers” as “picking winners”. This month, Louis looks at the (worrying) direction of US fiscal policy and wonders whether the next shoe to drop could be defense contractors and energy producers in the US, and even municipal bonds.
Gavekal Research
November 15, 2017
Our new monthly Loser Report aims to identify things that investors should avoid, whether countries, sectors, themes or asset classes. In this second instalment Louis looks at the tumult affecting Saudi Arabia and assesses the ricochet effect across the Middle East and beyond.
Gavekal Research
June 14, 2018
Is a crisis in US dollar bond markets really inevitable if the Federal Reserve continues on its current tightening trajectory? Some think so, including Reserve Bank of India governor Urjit Patel, who this month expressed his fears in an op-ed in the Financial Times.
Gavekal Research
June 8, 2018
Since the early 1980s, buying and holding US long bonds has been a solid investment strategy. This macro environment was supported by a favorable demographic tailwind that ensured a bountiful supply of global savings.
Gavekal Research
June 1, 2018
Corporate America shot the lights out in the first quarter as tax cuts helped S&P 500 earnings soar by 23%, while macro data released this week showed profits rising an aggregate 14% year-on-year, versus 4.8% in 2017. This week also saw good news for banks, as regulatory shackles were loosened.
Gavekal Research
May 31, 2018
On Wednesday, Louis argued that the Italian president’s rejection of a proposed coalition finance minister was “worse than a crime, a mistake”. Anatole and Cedric are not so sure. In this paper they examine the two conditions—one political, one financial—that will signal a major buying opportunity in Italy.
Gavekal Research
May 30, 2018
On hearing that Napoleon Bonaparte had ordered the execution of a Bourbon-family duke, the arch realpolitik practitioner Charles Maurice de Talleyrand reputedly exclaimed: “This is worse than a crime. It’s a mistake”. Fast forward a few centuries and it’s not hard to imagine what Talleyrand would make of Italy’s President Sergio Mattarella.
Gavekal Research
May 22, 2018
The leaders of Italy’s Five Star and Lega political parties on Monday nominated little-known law professor Giuseppe Conte to be the country’s next prime minister.
Gavekal Dragonomics
June 15, 2018
China’s credit growth slowed to a new low in May, but the deceleration in real economic activity remains a moderate one—although sharp contrasts are now appearing among different indicators. In this piece, Chen Long explains why credit growth is likely to continue to slow, and how that will affect different parts of the economy.
Gavekal Research
May 31, 2018
Chinese growth surprised on the upside in the early part of the year, but Andrew thinks that a gradual loss of altitude is now unfolding. This is mainly due to slowing property market activity, which increasingly displays late-cycle characteristics.
Gavekal Dragonomics
May 29, 2018
Chinese government policy for the property market is turning tighter, a shift that will weigh on housing sales and construction activity in the rest of 2018. But Rosealea cautions against overreacting, arguing that the downcycle in property is still likely to be a shallow one, and that policy will loosen again once market conditions weaken.
Gavekal Research
June 15, 2018
If the European Central Bank had a dot plot, on Thursday it would have shifted downwards. The ECB’s dovishness stood in contrast with the Federal Reserve, which just a day earlier moved its own dot plot projection of future interest rates upwards.
Gavekal Research
June 12, 2018
When they meet on Thursday, European Central Bank policymakers face a dilemma. As wage and price pressures rise across the eurozone, they are expected to outline an exit from quantitative easing policies. At the same time, growth indicators are weakening, raising the specter of a eurozone recovery (again) being cut off in its infancy.
Gavekal Research
May 28, 2018
On the face of it, the collapse on Sunday evening of attempts in Italy to form a coalition government comprising the populist and Euroskeptic Five Star and Lega parties should be good news for European assets and the euro, at least in the short term.
Gavekal Research
May 18, 2018
I have tended to see oil not so much as an asset in which to build a position as a party spoiler that can wreak havoc on a portfolio. Yesterday saw the price of Brent break above US$80 a barrel for the first time since November 2014 and the pain is visible in a range of emerging markets that run big external deficits.
Gavekal Research
May 4, 2018
Having fallen more than -10% from their late January peak, emerging markets are looking shaky. Higher yields, a stronger US dollar and rising oil prices have all contributed to a tough environment.
Gavekal Research
February 20, 2018
It made headlines around the world earlier this month when the US government’s Energy Information Administration announced that US oil production had hit 10.25mn bpd in the last week of January.
Gavekal Research
June 8, 2018
The summer monsoon lashed across southwest India yesterday, just a few hours after the central bank announced its first interest-rate hike in more than four years.
Gavekal Research
June 5, 2018
India is rapidly adding new urban metro systems, with ten already built, five under construction and 17 in the planning stages. Tom argues that it is following in China’s footsteps, but unlike China, foreign equipment suppliers and contractors look likely to be major beneficiaries of the Indian build-out.
Gavekal Research
April 19, 2018
In a year’s time, 900 million Indians will be eligible to go to the polls in India’s general election. Two-thirds of them are likely to cast a vote, including 200 million aged under 30. Youth politics in India matters as nowhere else: the world’s biggest democracy has nearly as many young voters as the rest put together.
Gavekal Research
May 17, 2018
The Hong Kong Monetary Authority has again been intervening in the foreign exchange market after it stepped in last month when the Hong Kong dollar fell to its weakest in 35 years. So far the HKMA has bought HKD62bn, selling almost US$8bn to defend the Hong Kong dollar’s peg to the US dollar.
Gavekal Research
April 13, 2018
At Gavekal’s seminar in Hong Kong this week, Arthur Kroeber, Rosealea Yao and Nick Andrews presented their latest views on the brewing trade war between the US and China, Chinese growth and the property market outlook, and how to capture European growth.
Gavekal Research
March 29, 2018
In this video interview Joyce discusses why profits should drive a maturing cycle in EMs that increasingly favors commodity-focused markets outside of Asia, and the risks to such a benign scenario.
Gavekal Research
June 14, 2018
Will the Brexit agony never end? Theresa May managed this week to remove troublesome amendments attached by the House of Lords to her legislation for taking Britain out of the European Union. But she was immediately in even deeper political trouble.
Gavekal Research
February 16, 2018
Last week, the Bank of England upped its UK growth forecast and signaled that interest rates may be raised harder and faster than expected. This week, Theresa May’s government maintained its muddled passage towards a European Union exit, which has increasingly fretful multinationals warning that Britain’s economy could be headed for the rocks.
Gavekal Research
December 15, 2017
Full English Brexit is off the menu. When Theresa May rushed into the Café Berlaymont at 6:00am last Friday, all that was left on the menu was an over-priced double espresso with a side of Irish bacon.
Gavekal Research
June 14, 2018
Is a crisis in US dollar bond markets really inevitable if the Federal Reserve continues on its current tightening trajectory? Some think so, including Reserve Bank of India governor Urjit Patel, who this month expressed his fears in an op-ed in the Financial Times.
Gavekal Research
June 11, 2018
A strong US dollar, rising interest rates and higher oil prices are a toxic mix for emerging markets. A month ago it was only Turkey and Argentina that were looking really sick, punished by investors for their structural imbalances.
Gavekal Research
June 4, 2018
At the beginning of 2018, one of Gavekal’s big themes for the coming year was that the liquidity environment was deteriorating. Behind this we saw three causes: 1) the US Federal Reserve’s decision to shrink its balance sheet; 2) the growing toll of rising energy prices, and 3) the coming liquidity drain from runaway US government spending.
Gavekal Research
June 1, 2018
So far, 2018 has delivered a lot of volatility, and mediocre returns across almost all asset classes. Will the second half be any different? It's hard to sustain a high level of conviction given the resurgence of political risk.
Gavekal Research
May 22, 2018
Indian growth is picking up nicely just as the external financing environment gets tougher, with a strengthening US dollar, raising yields and most importantly, a sharply rising oil price. In their regular quarterly review, Udith and Tom argue that India can weather the storm, but global investors would do well to back away from the market.
Gavekal Research
April 18, 2018
During yesterday’s monthly call, Arthur Kroeber addressed rising geoeconomic and geopolitical tensions between the world’s two biggest economies.
Gavekal Dragonomics
May 29, 2018
Chinese government policy for the property market is turning tighter, a shift that will weigh on housing sales and construction activity in the rest of 2018. But Rosealea cautions against overreacting, arguing that the downcycle in property is still likely to be a shallow one, and that policy will loosen again once market conditions weaken.
Gavekal Dragonomics
May 23, 2018
The story of China’s urbanization has long been the migration of people from the country to the cities. Not anymore: as Ernan explains, rural migration has slowed sharply, and is being replaced by the reclassification of rural areas into urban ones. Policymakers now prefer this “local urbanization,” even though it delivers less income growth.
Gavekal Dragonomics
February 28, 2018
Since markets reopened after the Chinese New Year holiday, the prices of commodities tied to China’s construction cycle have been picking up. This optimism could be justified: construction fundamentals are solid and policy interventions are mostly positive. In this piece, Rosealea explains the upside risks for construction activity in early 2018.
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’.
Gavekal Research
June 13, 2018
After the Trump-Kim summit, North Korea's commitment to denuclearization still remains a fiction. Future negotiations will be little more than an exercise in stringing along the US administration.
Gavekal Dragonomics
June 7, 2018
Ominous clouds are gathering over Taiwan, as China steps up displays of military force and its campaign of international isolation. Could this escalate into a replay of the 1995-6 Taiwan Strait crisis, or something even worse? In this piece, Yanmei assesses the rising risks, but argues that military conflict is still a remote possibility.
Gavekal Dragonomics
April 26, 2018
With North Korea suddenly seeming happy to negotiate with its old adversaries, some analysts reckon the regime is buckling under US pressure. Yanmei says this is wishful thinking. Kim Jong-un probably believes he has achieved nuclear deterrence—and he is most unlikely to relinquish it. China and South Korea just want to avoid a US military strike.