Gavekal Dragonomics
August 16, 2018
China’s government is making a determined effort to co-opt private technology companies to help modernize its military. The pressure to support this drive, known as “military-civil fusion,” creates new political risks for tech companies and their investors: they could face more Chinese government interference and a political backlash from abroad.
Gavekal Research
August 16, 2018
Emerging market equities are officially in a bear market, with the MSCI EM index down -20% from its January peak. EM-related commodities are also hurting, notably copper which has fallen -18% since June. The central question now is whether one should steer clear of all EM assets, because the rout is general and likely to get worse; or if one should keep an eye out for buying opportunities here and there.
Gavekal Research
August 15, 2018
Some 25mn Indians traveled abroad last year, making sub-continent tourists increasingly important for a range of major destinations. They may not yet rival Chinese travellers who are by far the biggest group of globe-trotters, but in this piece Tom argues that is only a matter of time. Already, it is cheaper for Indians to travel to a range of overseas destinations than within India itself and the middle class increasingly has the travel bug.
Gavekal Research
July 26, 2018
The US-EU trade truce announced by President Donald Trump and European Commission President Jean-Claude Juncker on Wednesday is good news for the world economy. Yet it is still far too early to write off global macro risk from a generalized trade war.
Gavekal Research
July 24, 2018
Will we see any break in the escalation of Trump’s trade wars this year—either because one of the targets capitulates and tries to strike a deal with the US, or because blowback within the US against the negative impact of trade wars gets strong enough that Trump needs to beat a tactical retreat? The answer is a firm no, on both counts.
Gavekal Research
July 18, 2018
For the 70 years since the launch of the Marshall Plan, the US dollar has reigned unchallenged as the world’s reserve currency. I have written extensively about the characteristics of the world monetary system that has grown up based on the US dollar.
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
August 2, 2018
There is a lot to like about US housing. Vacancy rates are low, as are inventories of unsold homes. The labor market is tight and wages are steadily rising. At this point of the cycle there has usually been substantial over-building, but not this time.
Gavekal Research
July 31, 2018
Last month, Will and KX asked When To Buy US Bonds? This month, they turn their attention to US equities and devise a portfolio asset allocation model that advocates overweighting stocks against bonds when returns on invested capital and earnings yields exceed corporate funding costs.
Gavekal Research
July 30, 2018
The US economic engine is humming, and corporate earnings continue to beat expectations. Data released on Friday showed real GDP grew at an annualized 4.1% in the second quarter. And with just over half the S&P 500’s constituents having reported for 2Q, 83% have exceeded earnings expectations. Yet investors are unimpressed.
Gavekal Research
July 12, 2018
The big worry about Italy is that its new populist government adopts policies that spark another eurozone crisis, and even a breakup of the European Union. This view is almost certainly wrong, for despite the government this week announcing a roll-back of labor market reforms, it will struggle to implement its radical agenda in any systematic way.
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 Dragonomics
July 9, 2018
Xiaomi and other Chinese smartphone makers are among the first Chinese consumer-goods companies to have gained significant market share outside of China. In this piece, Dan explains where their success has come from and assesses their prospects: Chinese smartphones may not displace Apple and Samsung, but can limit their gains in emerging markets.
Gavekal Research
June 29, 2018
The US has backed away from the “nuclear” option of slapping new investment curbs on Chinese firms, but its likely use of export restrictions and tariffs on “strategic” sectors like semiconductors will hit all parts of the supply chain, regardless of nationality.
Gavekal Dragonomics
June 4, 2018
Our first DeepChina report takes a close look at Beijing's efforts to exert tighter control over the internet, the flow of commercial data, and the security of its technological infrastructure. China ia nor alone in toughening regulation, but its efforts are far more expansive, and raise more serious concerns for multinational firms.
Gavekal Research
August 1, 2018
The momentum for a weaker renminbi is considerable, with the US ratcheting up its trade war with China and the Chinese government moving to easier fiscal and monetary policies. But Chen Long argues that the renminbi’s downside from current levels may prove limited even though the central bank is unlikely to intervene as much as it did in 2015-16.
Gavekal Dragonomics
July 25, 2018
As China’s government shifts economic policy more explicitly into easing mode, will it relieve the growing strains in the corporate bond market? In this piece, Chen Long diagnoses the underlying causes of a recent wave of defaults that have spooked investors, and explains how the government is changing policy to ease that financial stress.
Gavekal Research
July 4, 2018
After its biggest downward move since 2015, where is the renminbi headed next? Since mid-June it has fallen by over -4% against the US dollar to CNY6.63, and the trade-weighted CFETS index has also declined by -3% from its June peak. This has led to some commentary that China is pushing down its currency to prepare for a trade war with the US.
Gavekal Research
July 27, 2018
After a rocky first half of the year, in which a clutch of key indicators deteriorated steeply, recent signs indicate that eurozone growth is stabilizing rather than rolling over. Without doubt, there are still formidable downside risks.
Gavekal Research
July 10, 2018
Should we worry that eurozone corporate bond spreads have doubled since late January? After all, bond yields are rising globally and as deflationary risks have ebbed the European Central Bank has signaled its intent to normalize monetary policy. Yet, looking back at the eurozone’s last cycle, policy was tightened without spreads blowing out.
Gavekal Research
June 28, 2018
Wednesday was another grim day for European bank stocks, which are now down almost -24% from their late January peak. Yesterday Louis looked at the reasons behind the slump in bank shares globally, and attempted to find a silver lining to the dark cloud of their underperformance (see The Message From Bank Stocks).
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
July 25, 2018
India has won kudos for adopting a modern bankruptcy law that makes it easier for big lenders to clean house on a bad debt problem that has festered since the early 2000s.
Gavekal Research
July 10, 2018
India's logistics sector is so inefficient that getting goods from producers to consumers accounts for about 17% of national output, or twice the level in most developed economies. The result is retarded growth and weakened competitiveness.
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
July 25, 2018
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
July 30, 2018
On Friday, Anatole set out his view that a second Brexit referendum is likely, and that in all probability it will reverse the original 2016 vote.
Gavekal Research
July 27, 2018
If a country votes to make two plus two equal five, that “democratic decision” will eventually be overwritten by the rules of arithmetic. Anatole reckons this is what’s playing out in Britain, as Theresa May’s government struggles to get a parliamentary majority for any realistic Brexit plan.
Gavekal Research
July 9, 2018
“Will the Brexit agony never end?” Anatole asked in mid-June. It now seems that the agony may end much sooner than expected.
Gavekal Research
July 5, 2018
Emerging markets have been hit by the combined effect of a stronger US dollar, tighter international liquidity and rising trade tensions, causing their currencies to fall more in the last few months than in the 2013 “taper tantrum”. The big fear for EMs is that the end of easy money globally creates a giant margin call.
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 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
August 1, 2018
In our latest outlook for global investment strategy, Charles Gave warns that the world may be heading into a dollar liquidity squeeze. There have been seven such scarce-dollar episodes since 1971, and every one produced some big financial accidents.
Gavekal Research
July 12, 2018
In this call Arthur Kroeber outlined his view on why President Donald Trump’s trade war is not a bluff, and is likely to escalate ahead of the US midterm elections in November; Andrew Batson explained the macro-level effects caused by all this uncertainty; and Chen Long discussed the market impacts in China and the country’s likely response.
Gavekal Dragonomics
June 25, 2018
In this concise chartbook, Chen Long explains where the Chinese economy stands today. The business cycle has been surprisingly strong but is likely to soften more in the second half. Trade conflict with the US is raising uncertainty just as domestic credit stress increases. Policy is adjusting, but to smooth the growth trajectory not reverse it.
Gavekal Dragonomics
July 26, 2018
The long decline in China’s housing inventories—the key factor driving the recovery in construction—now seems to have ended. After falling in 2015, 2016 and 2017, housing inventories are now on pace to end 2018 slightly higher. In this piece, Rosealea explains why this change will not spell the end of the construction cycle just yet.
Gavekal Dragonomics
June 29, 2018
China's government, worried about continued rapid growth in housing prices, is now reconsidering a major program for subsidizing housing sales. As Rosealea explains, this policy change shows the government is still more focused on curbing frothy housing prices than on boosting growth, and will weigh on housing sales in the rest of 2018.
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
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 mostly about stringing along the US administration. While Washington and Pyongyang talk, Beijing and Seoul will continue to try to normalize the existence of a nuclear-armed North Korea and cement peace.
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.