Gavekal Research
April 23, 2019
When the Fed launched QE2 in 2010, there was widespread fear that a great inflation beckoned. It has not exactly worked out that way. Louis considers the role energy played in a decade of becalmed US consumer prices. Yet, with oil prices again rising, he asks whether the market has grown complacent in its analysis of the relationship between oil and inflation.
Gavekal Research
April 23, 2019
US Secretary of State Mike Pompeo has announced that the US will not roll over waivers on its sanctions on Iranian oil exports when they expire in May. The question for investors is this: If Washington does make good on its threat, to what extent are other oil producers able and willing to increase output in order to make up any supply shortfall in global markets?
Gavekal Research
April 18, 2019
India’s cacophonous exercise in democracy is well underway and polling suggests there is only a 50% chance of a Narendra Modi-led BJP holding onto power. Tom dives into the details of why the “bear-hugging” reformer has electoral problems this time around. Tom also considers the likely outcome of the election for Indian asset markets.
Gavekal Research
April 2, 2019
Last Thursday, with the price of oil approaching a four-and-a-half month high, Donald Trump took to Twitter. “Price of Oil getting too high.” Trump’s tweet had little effect, with Brent crude hitting US$69/bbl on Monday. Prices are likely to continue to push higher over the coming months towards 2018's highs—a troubling prospect.
Gavekal Research
March 29, 2019
Harold Wilson, the former British prime minister’s, quip that “a week is a long time in politics” has become an over-used cliche. Still, in the last week, there has been good reason to dust it off.
Gavekal Research
March 22, 2019
Some say, “if at first you don’t succeed, try, try again.” Others regard repeating the same mistake over and over again, and expecting the results to change, to be the very definition of insanity. I fear that the majority of “respectable economists” (meaning they always side with the consensus) inhabit the first of the two camps.
Gavekal Research
March 1, 2019
The prospect of a US-China deal on tariffs has already boosted China’s stock market and currency. But it won’t reverse China’s growth slowdown, which is largely the result of Beijing’s efforts to de-leverage the financial system. The good news is that credit growth is rebounding, which will stabilize growth in 2H18.
Gavekal Research
February 26, 2019
So far, so predictable: President Donald Trump’s weekend tweets extending the deadline for US-China trade talks past March 1 made clear his intention to get a deal done, most likely in the second half of March when Xi Jinping pays a visit to Mar-a-Lago.
Gavekal Research
February 22, 2019
In recent days, news reports have pointed to an impending trade deal between the US and China. A tweet by the US president that seemed to favor Chinese tech firms has added to that expectation.
Gavekal Research
April 17, 2019
Charles dusts off his equity and bond valuation models for the US and is disturbed to see that for only the fourth time since the mid-1980s both asset classes are simultaneously overvalued. In this piece, he asks: what gives?
Gavekal Research
April 15, 2019
Happy days seem to be here again as risk assets soar on a dovish Federal Reserve and better growth outlook. Yet, investors should take note. The Fed has three official mandates; namely, to keep inflation low and stable, keep unemployment down, and keep interest rates low and stable.
Gavekal Research
April 10, 2019
When the US slides into recession, it generally does so because of a contraction in investment, either in the corporate sector or in the housing market. Today, returns on capital invested in housing exceed the cost of capital, signalling a positive outlook for US residential investment, construction, house prices, and the shares of homebuilders.
Gavekal Research
February 14, 2019
European politics is again heating up. Yesterday saw the Spanish government fail to pass its budget in a move likely to spur fresh elections. Populists in Italy and yellow vests in France are keeping up their campaign of disruption.
Gavekal Research
January 15, 2019
As the economy weakens, yellow-vested agitators show no sign of giving up on their campaign to block President Emmanuel Macron’s effort to change the way France works.
Gavekal Research
December 14, 2018
Until last week it was possible to make the case that the EU could still push ahead with major structural reform under the current political configuration. After a continuity candidate took over as head of Germany’s governing party and Macron turned on the fiscal spigots in France to buy off political dissent, that is no longer the case.
Gavekal Research
April 12, 2019
Smartphones are a maturing industry. Sales in China, the US, Europe and Japan are declining, and demand growth in India and Africa is not fast enough to drive a new surge in global sales. The industry is hoping that 5G and foldable phones will trigger a fresh upgrade cycle. But neither will drive a significant increase of sales in the near term.
Gavekal Dragonomics
April 9, 2019
5G mobile is the technology of the future, and the US and China are now in a life-or-death struggle to dominate it. That anyway is the story used to justify the US government’s campaign against Huawei—but as Dan argues in this piece, this is mostly alarmism disconnected from reality. It’s best not to get caught up in the politicized hype about 5G.
Gavekal Dragonomics
March 26, 2019
For the freewheeling Chinese internet sector, regulatory risk arrived with a vengeance in 2018. Government actions hurt companies including Tencent in gaming, Didi Chuxing in ride-hailing, ByteDance in online media, and others. In this piece, Dan and Yanmei explain what drove these moves and how the new online regulatory environment will work.
Gavekal Dragonomics
April 16, 2019
The world’s deadliest pig disease is now established in the world’s largest pork market. The spread of African swine fever in China has been more severe than the government has admitted, and as a result pork prices are spiking and imports are surging. But as Ernan argues in this report, the impact of this epidemic is still only in its early stages.
Gavekal Dragonomics
April 11, 2019
Over the last two years, China has announced a series of steps intended to open market access for foreign businesses and ease its inward investment restrictions. In this paper, Lance examines these reforms and assess just how far they go towards leveling the playing field for foreign companies operating and investing in China.
Gavekal Research
April 4, 2019
Starting from April, Chinese government and policy bank bonds are included in the Bloomberg Barclays Global Aggregate bond index. But index inclusion, while an important landmark, may not be the best guide to market timing. After a bull run that has lasted since the beginning of 2018, China’s bond market rally looks to be nearing an end.
Gavekal Research
April 12, 2019
The eurozone is rapidly becoming the Errol Flynn of global economies: it just never fails to disappoint. From weak German PMIs, through falling French industrial production, to Italy slipping back into recession, it is hard to think of a single European data point over the past 12 months that gave any reason for cheer.
Gavekal Research
April 9, 2019
Chinese premier Li Keqiang is in Brussels on Tuesday for the 21st EU-China summit, and the talks are likely to be testy. After much dithering and in response to much pressure from Washington, the EU has begun to take a more hardline posture towards China. The core EU countries share many of the concerns that motivate the US trade war with China.
Gavekal Research
April 5, 2019
Europe is the world’s most export-dependent big economic region. In such a precious position, the effect of external weakness can be debilitating, as shown by the eurozone manufacturing PMI having just fallen to its lowest in nearly six years at 47.5. The question is whether any respite can be found in overseas markets.
Gavekal Research
April 2, 2019
Last Thursday, with the price of oil approaching a four-and-a-half month high, Donald Trump took to Twitter. “Price of Oil getting too high.” Trump’s tweet had little effect, with Brent crude hitting US$69/bbl on Monday. Prices are likely to continue to push higher over the coming months towards 2018's highs—a troubling prospect.
Gavekal Dragonomics
March 11, 2019
It’s looking like a good spring for China’s steel industry. In this piece, Rosealea reports on her findings from a recent visit to the steelmaking capital of Tangshan. Steel and iron ore prices are being supported by a combination of stable demand from property, recovering demand from infrastructure and supply constraints from scrap shortages.
Gavekal Dragonomics
December 10, 2018
Chinese steel prices suffered their biggest decline in two years in November, falling about 20% over the course of the month. That correction was driven by a combination of a big increase in supply along with worries about future demand. In this piece, Rosealea argues that both problems will be short-lived, and that steel prices can rebound.
Gavekal Research
April 17, 2019
Indian markets are pricing in a victory by the ruling BJP in this year’s general election, a six-week process of mindboggling complexity that started on April 11. But while this will be the most likely single outcome when results are announced on May 23, nothing is a foregone conclusion under India’s unpredictable first-past-the-post system.
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
February 20, 2019
In India, all eyes are focused on May’s general election. In the lead-up, the government has turned on the spending spigots and the central bank has obliged with a recent surprise interest rate cut. However, in this quarterly update Udith and Tom argue that such measures may not be enough to restart the stalled capital spending cycle.
Gavekal Research
April 12, 2019
The annual EU-China summit concluded this week with usual diplomatic platitudes about deepening partnerships and strengthening cooperation. But the meeting took place against a backdrop of heightened tensions, after the EU declared China a “systemic rival” and with many European politicians highly critical of China’s economic nationalism.
Gavekal Research
April 9, 2019
Louis Gave examined the reasons for equity markets' good performance amid a global trade slowdown; Thomas Gatley assessed the state of the Chinese economy and whether the current Chinese equity bull market still has legs; Udith Sikand reckoned it is time to be positive on emerging markets, especially EM Asia.
Gavekal Dragonomics
April 5, 2019
Home sales in China fell by 3.6% in the first two months of 2019. This, however, was better than expected considering that this upcycle is now four years old. Lower mortgage rates and supportive policies by local governments should prop up demand, and Rosealea expects overall housing sales to decline a modest 2% for the year.
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
March 26, 2019
By removing the hard deadline for Brexit negotiations the EU has avoided the disaster of a 2008-style sudden stop in business with its second largest trading partner. This decision reinforces the bullish momentum for sterling, which remains undervalued especially against the US dollar.
Gavekal Research
April 16, 2019
We live in populist times.
Gavekal Research
April 1, 2019
Turkey has long been a market to steer well clear of, with investment opportunities poisoned by toxic politics and an ever-depreciating local currency. However, with the US Federal Reserve adopting a more dovish stance and following the weekend’s municipal elections, Turkish lira assets may now offer an attractive tactical opportunity.
Gavekal Research
March 28, 2019
With their high beta to global growth, emerging markets seldom outperform when investors begin to get nervous about the health of the global economy.
Gavekal Research
April 5, 2019
In yesterday’s Gavekal Research Conference Call, Will Denyer and Udith Sikand addressed the changing US dollar liquidity environment, and its impact on markets.
Gavekal Research
April 1, 2019
The prospect of easier liquidity conditions helped make 1Q19 one of the best ever quarters for US equities. Confirmation of the Federal Reserve’s newly dovish policy stance means that US equities should continue to do well through 2019.
Gavekal Research
February 20, 2019
In India, all eyes are focused on May’s general election. In the lead-up, the government has turned on the spending spigots and the central bank has obliged with a recent surprise interest rate cut. However, in this quarterly update Udith and Tom argue that such measures may not be enough to restart the stalled capital spending cycle.
Gavekal Dragonomics
February 20, 2019
China’s local governments are cutting back their slum redevelopment plans, which points to lower government subsidies for housing in 2019. As a result, Rosealea argues, housing sales are likely to have a deeper decline this year, although Beijing will manage the phase-out of subsidies with a careful eye on how it affects the market.
Gavekal Dragonomics
January 30, 2019
While many forecasters had expected China’s steel demand to enter long-term decline as housing construction peaks, in fact it has stayed surprisingly strong. In this piece, Rosealea revisits her housing model, and finds it is consistent with recent trends. Construction should peak in 2020-22, so steel demand can stay elevated for a few more years.
Gavekal Dragonomics
January 14, 2019
China’s property market keeps delivering bad news: declines in housing sales, land sales and prices have deepened in recent months. But Rosealea sees some positive signs in easing local government policies, lower bank funding costs, and strong momentum in construction. In this piece, she explains why she is not joining the property-market bears.
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’.