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. So, when the US runs a current account deficit, it pumps large quantities of US dollars abroad, many of which flow into the foreign exchange reserves of countries running current account surpluses.
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. The next turn in this crisis is, however, unlikely to float as many boats, as shown by divergent inflationary trends across EM economies.
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. Turkey tested its new Russian missile air-defense system in mid-October, defying its NATO allies.
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 8, 2020
Previously, Louis outlined the four asset classes that investors appear to regard as anti-fragile, now that US treasuries no longer fit the bill. With each of these four asset classes enjoying a roaring bull-run, today Louis examines the typical life cycle that lifts an asset class from unloved hell to anti-fragile heaven.
Gavekal Research
September 3, 2020
Previously, Anatole tried to explain why he had abandoned the bearish view on equities. We will not know for a long time whether any of his explanations make sense, but Jerome Powell’s speech about the Federal Reserve’s new operating philosophy bolstered his confidence in a once-in-a-generation economic regime change.
Gavekal Research
August 18, 2020
Yesterday, Anatole suggested that stock markets may be soaring to new records because the Covid-19 crisis could indirectly produce a stronger world economy in the coming decade. Today, he seeks to explain his damascene conversion from post-March bearishness in order that readers can better judge the merit of this view.
Gavekal Research
September 16, 2020
China’s manufacturers are back to normal, and then some. Exports and manufacturing output are running faster than their pre-pandemic trend in 2019, even as global trade is contracting. In this piece, Andrew and Thomas explain what’s driving those strong numbers, and why they are actually a sign of continued weakness in the global economy.
Gavekal Research
June 10, 2020
Many US states begun to re-open their economies without getting their Covid-19 outbreaks firmly under control. They initially did this without experiencing a spike in infection levels, but the situation has now changed, writes Arthur.
Gavekal Research
April 22, 2020
On Monday, Arthur laid out the core scenario for the exit from social lockdowns in both Europe and the US: a gradual relaxation of the most severe restrictions between now and mid-June, followed by several months or more of significant, but less onerous, restrictions.
Gavekal Dragonomics
September 24, 2020
After a historically disastrous quarter, Chinese companies are now enjoying a V-shaped rebound—but what is driving this bounce, and how sustainable is it? In his annual chartbook, Thomas answers these and other questions, dissecting the impact of Covid-19 on China’s corporate sector across sales, margins, profits, cashflow, capex and leverage.
Gavekal Dragonomics
September 17, 2020
Consumer spending in China looks to be firmly on a recovering track, with Covid-19 under control and the job market improving. But the shock to household income in the first half of 2020 could still linger over spending for a while. In this piece, Wei explains what could keep consumption from quickly regaining previous growth rates.
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 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
April 21, 2020
A friend has a sizable dairy farm in France. He usually sells his cows’ milk to local makers of yogurt and cheese for anywhere between €250 and €350 per 1,000 liters. Today, with most local cheesemakers shut down, buyers are offering just €1 per 1,000 liters for his milk. It could be worse, though. He could be in oil.
Gavekal Research
August 17, 2020
With US$3trn added to the US national debt during the Covid-19 crisis and trillions more in the works should new salary replacement payments be agreed in Congress, a vital question for investors is how to think about this runaway government spending and what it means for bonds and the US dollar.
Gavekal Research
August 14, 2020
China is engaged in an imperial project that will not be typified by territorial conquest, but by “road building”. This is done to bring commodities to the heart of the empire at the cheapest cost, while higher value-added finished goods are pushed out to its outer realms.
Gavekal Dragonomics
August 11, 2020
The China hawks are at the wheel in the Trump administration and driving as fast as they can. In this report, Arthur outlines the many tactics being employed by hardliners in the White House to lock in an adversarial stance against China ahead of the US elections. However tense things have been so far, even tenser times lie ahead.
Gavekal Research
September 29, 2020
Equity markets often seem to have a split personality, but seldom more so than over inflation. A sizable portion of investors is worried that the Federal Reserve is struggling to overcome deflationary pressures, while many of the rest fear the explosion in monetary aggregates must inevitably lead to runaway inflation.
Gavekal Research
September 28, 2020
The nomination of a new Supreme Court justice with a record of opposing “Obamacare” means the US is more likely to see its health care system upended in the next nine months.
Gavekal Research
September 24, 2020
As if markets weren’t nervous enough, US policymakers have been fueling the nervousness.
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
June 16, 2020
The Covid-19 pandemic has shocked China’s financial regulators into allowing a substantial rebound in total credit growth. But they are not worried enough to abandon their strict control of shadow finance. As Xiaoxi explains in this piece, a recent bounce in the shadow finance numbers is due to a popular arbitrage which is now being contained.
Gavekal Dragonomics
June 12, 2020
As China tries to get the economy back to normal, it is focusing more on the plight of small businesses, who have lost weeks or months of revenue to the pandemic. Yet it has resisted offering the loan guarantees other countries have employed. In this piece, Xiaoxi assesses the other tools China is using to boost lending to the smallest firms.
Gavekal Dragonomics
June 8, 2020
Financial markets are the latest field in which US-China political tensions are playing out. Thomas describes two lines of attack US hawks are pursuing against China: blocking Chinese firms from US equity markets and pressuring US asset managers to avoid Chinese equities. The risk associated with Chinese stocks has therefore materially increased.
Gavekal Research
October 1, 2020
Hawks want the European Central Bank to wind down its monetary stimulus once the immediate Covid crisis is over. On Wednesday, ECB president Christine Lagarde poured a large bucket of cold water over that idea.
Gavekal Research
September 23, 2020
A series of controls have been announced by European countries in reaction to sharp increases in the numbers testing positive for the Sars-CoV-2 virus.This has raised fears of renewed lockdowns and economic havoc.
Gavekal Research
September 18, 2020
The latest Covid figures from Europe make sobering reading, with countries including France, Spain and others seeing pronounced second waves of new cases. Equity markets, however, have reserved judgment. Yes, the rebound that started in mid-March has been stalled for the last two months as infections have mounted.
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
October 9, 2020
The euro’s appreciation against the US dollar has stalled out as resurgent Covid-19 infections threaten new lockdown measures, and a possible upending of the economic recovery. Nick argues that the euro’s decade-long run as a “weak currency” was down to policy settings that kept domestic demand weak.
Gavekal Research
September 30, 2020
Tuesday’s ill-tempered presidential debate will only fuel claims that the US election could see massive fraudulent voting and therefore end with the result challenged in court—and maybe on the streets.
Gavekal Research
September 25, 2020
In recent weeks some of the biggest US equity winners since the start of the Covid-19 crisis have appeared to run out of steam, as the Federal Reserve abstained from stepping up its asset purchases. Meanwhile, Congressional gridlock seems to stand in the way of renewed stimulus for American consumers.
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
June 16, 2020
The crowds that Monday swarmed British shops, allowed to open for the first time in 12 weeks, at first sight bodes well for a V-shaped recovery. Yet despite plentiful accumulated savings and considerable pent-up demand, the UK’s consumption-driven economy faces formidable post-lockdown headwinds, with consequences for equities and sterling.
Gavekal Research
September 2, 2020
Asia is seen as having had a “good” Covid-19 crisis, as it learnt vital lessons from the 2003 Sars outbreak and its policymakers have been typically more frugal than their Western peers.The problem with such generalizations, argue Udith and Vincent, is that they conceal huge discrepancies among countries.
Gavekal Research
September 1, 2020
The Federal Reserve’s new policy framework seems set to keep US monetary policy easier for longer, with the main victim being the dollar. Asian currencies now look well primed and the question for investors is how to play this trend given the very different experiences being had by regional economies.
Gavekal Research
August 13, 2020
As US equities brush up against new highs and safety assets like gold and treasuries sell off, global risk appetite has risen this week. Investors are betting that a vaccine for Covid-19 is at hand and if not, the world is at least learning to live with the virus.
Gavekal Research
September 4, 2020
Charles Gave, Louis Gave and Will Denyer joined Arthur Kroeber at the global investment roundtable to discuss what's going on in the global economy.
Gavekal Research
September 3, 2020
With US equities once again at record highs and the Fed promising to keep rates nailed to the floor, it is time to ask hard questions of the bull market that won’t die. That interrogation is conducted by Charles and Louis Gave. In these strange times, the case for owning anti-fragile assets has rarely been stronger, they contend.
Gavekal Research
June 3, 2020
India has experienced a draconian lockdown that could result in output shrinking by -25-45% in the second quarter of the year. The result will be a sharp worsening in the fiscal deficit and a low structural growth rate that leaves India as just another emerging market rather than a growth story to rival China’s.
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’.