Gavekal Research
January 15, 2021
US equity valuations are stretched and bond yields are rising. This has always proved an ominous combination. What’s different this time is that the Federal Reserve continues to inject vast amounts of liquidity into the system. But will the Fed’s infections continue? And if they do, as the pandemic recedes will they prove big enough both to finance economic reopening and to keep asset prices afloat?
Gavekal Research
January 15, 2021
In a speech late Thursday, US President-Elect Joe Biden called on Congress to approve an additional US$1.9trn of federal spending to tackle the Covid-19 pandemic and support the US economy. If approved, Biden’s package will bring US government stimulus spending since the start of the pandemic to more than US$5trn.
Gavekal Research
January 14, 2021
A year after Covid-19 was first revealed in China, the country has emerged as one of the key economic winners of the global pandemic. In this video interview, Arthur assesses how it did this and looks at the new priorities for Chinese industrial development in a world that has become less open and more suspicious of Chinese intentions.
Gavekal Research
December 14, 2020
Today sees the US vaccination program initiated, and investors are enthused that some kind of return to normal life is finally becoming visible. Nowhere has this “glass half full” view been stronger than in the US corporate credit market, as yield spreads for both investment-grade and high-yield bonds have broken new lows.
Gavekal Research
December 7, 2020
Investors are looking ahead to us economic growth picking up as vaccines are deployed and restrictions dialed back. With the Federal Reserve having anchored short rates near zero, this dynamic is causing a yield-curve steepening. The question is whether higher yields feed back into a still vulnerable US economy and choke off the recovery.
Gavekal Research
November 23, 2020
As the latest wave of US coronavirus infections continues to worsen, the probability of a modest contraction in fourth quarter GDP is rising. However, there are solid arguments for believing that the worst case scenario for 4Q remains no worse than a mild contraction in output.
Gavekal Research
November 17, 2020
Hopes for effective coronavirus vaccination programs in 2021 propelled both the S&P 500 and the Russell 2000 small cap index to record high, but on the ground in the US, accelerating infections and rising hospitalization rates prompted more state and local governments to order additional restrictions in a bid to slow the spread of the virus.
Gavekal Research
November 6, 2020
With the coronavirus endemic in Europe, the new anti-Covid lockdowns being imposed by governments across the region, including in France, Germany and the UK, make about as much sense as a second, smaller, Maginot line would have done back in 1943 when the Germans were firmly entrenched in France.
Gavekal Research
October 28, 2020
Just a couple of weeks ago there were still reasons to be sanguine about the damage that rising coronavirus infections would inflict on Europe’s economy and financial markets. Today those reasons are looking a good deal thinner. Europe’s near term trajectory increasingly resembles a “W-shaped” recovery.
Gavekal Research
October 14, 2020
In financial markets, there are three prices matter above all: the price of the US dollar, the yield on 10-year US treasuries, and the price of oil. Get the direction of these right, and the other pieces of the investment puzzle fall into place.
Gavekal Research
July 14, 2020
On Wednesday, ministers from the Opec+ oil exporting cartel will meet to decide whether to begin scaling back their production cuts, but with the prospect of a renewed increase in infection rates, it's safe to say they will adopt a cautious approach.
Gavekal Research
April 23, 2020
Gavekal’s dynamite fishing analogy maintains that the biggest impact of a market shock only shows up after a delay, much like the effects of an underwater explosion. First the small fry float to the top, then the mid-size fish. Only much later does the dead whale break surface.
Gavekal Research
October 22, 2020
What’s the most important event of 2020? Easy, you will answer: the Covid-19 pandemic. Maybe. But will it really look that way in hindsight? Sure, Covid seems pretty momentous today. But years hence, will it really be seen as a key driver of structural change? Or will the most important event of 2020 be regarded as something else entirely?
Gavekal Research
October 21, 2020
Throughout my career, I have always found that it pays to bear in mind Jacques Rueff’s notion of US “imperial privilege.” Put succinctly: the US has long been the only country able to settle its current account deficits in its own currency.
Gavekal Research
October 13, 2020
In half a century of doing financial analysis, Charles has acquired the core conviction that there is not one type of bear market, but two. Think of these as the gentle black bear-type downturn that is survivable and the highly-dangerous, big brown grizzly collapse that for many money managers proves fatal.
Gavekal Research
October 16, 2020
Having remained sanguine over recent weeks as coronavirus infection rates in Europe mounted, on Thursday investors sat up and paid attention.
Gavekal Research
October 13, 2020
Usually when an economy contracts, corporate bankruptcies go up. This time is different. In European countries, bankruptcies in the second quarter—the low point of the lockdown-induced economic collapse—were down by anywhere between -16% and -33% in year-on-year terms.
Gavekal Research
October 8, 2020
Like a car, the more excess weight you add to an economy, the slower it drives. Slapping restrictions on normal activities, even if income support measures are offered, makes it harder for an economy to grow.
Gavekal Dragonomics
September 28, 2020
US companies will now have to apply for licenses to sell certain technologies to Semiconductor Manufacturing International Corp., China’s leading chipmaker. In this Quick Take, Dan outlines what this means for SMIC and why it is too early to write the firm off completely. The move also increases the risk of Chinese retaliation against US firms.
Gavekal Research
September 21, 2020
Last month President Trump issued orders that threatened massive disruption to two of China’s biggest technology companies. But the Commerce Department’s final decision on WeChat was less extreme than feared, and Trump’s blessing of a deal to avert a ban on TikTok signals a promising shift in the political calculus.
Gavekal Dragonomics
September 9, 2020
Most of the US government’s efforts to hinder China’s technological progress have focused on hardware, mainly semiconductors. But software is also now a front in the US-China tech conflict. As Dan explains in this piece, those tensions could make open-source software, which is free from most legal restrictions, even more globally important.
Gavekal Dragonomics
October 20, 2020
The strong performance of China’s manufacturing sector reflects both the country’s success in getting the virus under control as well as its long-established manufacturing strengths. In this report, Dan explains why multinationals are reluctant to leave a country they’ve built up to be the world’s best manufacturer.
Gavekal Dragonomics
October 19, 2020
China’s recovery story continues apace, with strong showings in exports, retail sales and manufacturing counteracting a softening in the property sector. In this Quick Take, the Dragonomics team explains why Beijing is therefore unlikely to conduct further policy easing or support major infrastructure investment for the rest of the year.
Gavekal Dragonomics
October 15, 2020
China has seen a surge in funding to “strategic” high-tech industries following US attempts to strangle Chinese technological development. What’s surprising, Thomas writes, is that this funding is coming not from public subsidies but rather from capital markets, with the firms leveraging government support to raise equity and secure financing.
Gavekal Research
July 7, 2020
The bearish scenario for Hong Kong was that a combination of protests and Beijing’s heavy hand would trigger the flight of capital—financial and human—jeopardizing the peg and the financial system.
Gavekal Dragonomics
June 18, 2020
US President Donald Trump has pledged a response to Beijing’s decision to impose national-security legislation on Hong Kong, and has now signed legislation to sanction officials involved in the crackdown on Uighurs in Xinjiang. In this piece, Dan outlines the various legal tools that the US can bring to bear and their possible effects.
Gavekal Research
May 26, 2020
China has responded to prolonged political dissent in Hong Kong by proposing a tough anti-subversion law that threatens the city’s role as an international financial center. It remains unclear how this will be imposed on a common law-based legal system with a polar opposite jurisprudence to that on the Mainland.
Gavekal Research
September 18, 2020
India has taken a bigger economic hit from the pandemic than any other major economy, exacerbating a slowdown that was already underway. In addition, India is engaged in a high-stakes standff with China over its Himalayan border, which may force an economic decoupling of the two countries.
Gavekal Research
September 10, 2020
On Monday, for the first time since 1975, gunshots were fired on the disputed Himalayan border between India and China.Hundreds of incidents occur along the undemarcated Line of Actual Control every year, but this year’s skirmishes are the most dangerous for at least five decades.
Gavekal Research
September 9, 2020
India has taken a bigger economic hit from the pandemic than any other major economy. After reopening its economy in June, business activity is again weakening as the surging number of Covid-19 cases raises the chance of more localized restrictions. Udith and Tom evaluate the government's response and give a prognosis for the economy.
Gavekal Research
December 4, 2020
US Treasury Secretary Steven Mnuchin has come under fire for failing to extend a number of the Treasury’s liquidity support programs into 2021.
Gavekal Research
November 25, 2020
Investors in the US are displaying signs of euphoria as they anticipate the end of the pandemic due to the roll-out of vaccines. But is this shortsighted given the lack of agreement over fiscal stimulus?
Gavekal Research
November 19, 2020
European Union leaders are today sitting down for a high stakes summit. Poland and Hungary are threatening to scupper the EU’s budget and grandly-announced Recovery Fund if they are further penalized for becoming authoritarian and eroding the rule of law.
Gavekal Research
October 22, 2020
This week, Boris Johnson got what he needed politically: a bromide from Brussels that will allow him to camouflage the compromises he must make to secure a trade deal with the EU before the year’s end. But it will be a minimalist deal that will leave the UK’s service sector out in the cold, increasingly shut out of the EU’s markets.
Gavekal Research
September 30, 2020
The British government's new job support scheme to take effect next month offers much less generous subsidies, and job losses are inevitable. Heightened job insecurity will mean increased precautionary savings, compounding the downturn in consumption.
Gavekal Research
September 14, 2020
The world’s worst performing major currency, stock market and economy have all been located in Britain since Boris Johnson was reelected last December. This is not surprising.
Gavekal Research
October 20, 2020
Last spring, key beneficiaries of the rich world’s fiscal and monetary largesse were emerging market economies, which enjoyed unprecedented policy flexibility that gave broad-based, if not universal, financial relief.
Gavekal Research
October 20, 2020
Turkey’s economy is in crisis. The International Monetary Fund is forecasting a -5% contraction in GDP this year, the Turkish lira is down -28% against the euro year-to-date, unemployment and inflation are both in double digits, and bond yields are soaring. Yet President Recep Tayyip Erdoğan is pressing ahead with costly military adventures.
Gavekal Research
October 9, 2020
Earlier this week, Indonesia passed a sweeping “omnibus law” aimed at attracting foreign investment by lowering taxes, reducing labor costs and cutting red tape. In pushing through the new law, president Joko Widowo hopes to capture a slice of Asia’s shifting manufacturing-for-export business, as regional supply chains migrate away from China.
Gavekal Research
December 1, 2020
The impending rollout of vaccines in the United States is spurring two big equity rotations. With investors looking ahead to a post-Covid world, a rotation has begun from stocks that thrived in the pandemic to those that merely clung on.
Gavekal Research
November 5, 2020
With the US election outcome likely subject to a period of litigation and some uncertainty, yesterday Gavekal partners and US analysts convened to discuss the possible scenarios lying ahead and what they're likely to mean for asset markets.
Gavekal Research
September 9, 2020
India has taken a bigger economic hit from the pandemic than any other major economy. After reopening its economy in June, business activity is again weakening as the surging number of Covid-19 cases raises the chance of more localized restrictions. Udith and Tom evaluate the government's response and give a prognosis for the economy.
Gavekal Dragonomics
September 30, 2020
After a turbulent several days, on Tuesday China Evergrande Group averted a cash crunch that would have reverberated throughout China’s financial markets. In this Quick Take, Rosealea explains why Evergrande’s liquidity troubles are emblematic of the wider issues facing developers following China’s ongoing financing squeeze.
Gavekal Dragonomics
September 15, 2020
China’s economic recovery continues to boom ahead, with retail sales turning positive and exports continuing to outperform. In this Quick Take, Thomas, Rosealea and Wei explain why this momentum is likely to continue for several more months but might dampen towards the end of the year as credit tightens and the property market is reined in.
Gavekal Dragonomics
September 11, 2020
China’s central bank and housing ministry are putting together new restrictions on the leverage of major real-estate developers by drawing three “red lines” for the firms. In this report, Rosealea explains why regulators are targeting individual developers, as well as why she feels these red lines will have limited macro impact.
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’.